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EX-21.1 - EXHIBIT 21.1 - AMERICAN MEDIA INCexhibit211_listingofsubsid.htm
EX-12.1 - EXHIBIT 12.1 - AMERICAN MEDIA INCexhibit121_ratioofearnings.htm
EX-10.9 - EXHIBIT 10.9 - AMERICAN MEDIA INCexhibit109_amendmentandres.htm
EX-10.8 - EXHIBIT 10.8 - AMERICAN MEDIA INCexhibit108_waivertorevolvi.htm
EX-31.1 - EXHIBIT 31.1 - AMERICAN MEDIA INCami-ex311x20150331.htm
EX-32 - EXHIBIT 32 - AMERICAN MEDIA INCami-ex32_20150331.htm
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EX-31.2 - EXHIBIT 31.2 - AMERICAN MEDIA INCami-ex312x20150331.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2015

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission File Number 001-10784
American Media, Inc.
(Exact name of registrant as specified in its charter)
Delaware
65-0203383
State or other jurisdiction
of incorporation or organization
(I.R.S. Employer
Identification No.)
1000 American Media Way, Boca Raton, Florida 33464
(Address of principal executive offices) (Zip Code)
(561) 997-7733
Registrant’s telephone number, including area code

Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
 
 
 
Yes o
No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
 
 
 
Yes þ
No o
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
 
 
Yes o
No þ
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
 
 
Yes þ
No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
 
 
 
 
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
 
Accelerated filer
o
Non-accelerated filer
þ
(Do not check if a smaller reporting company)
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
 
 
 
Yes o
No þ




There is no public market for the registrant’s common stock. The number of shares outstanding of the registrant's common stock, $0.0001 par value, as of May 31, 2015 was 100.


DOCUMENTS INCORPORATED BY REFERENCE

Part III (Items 10, 11, 12, 13 and 14) of this Annual Report on Form 10-K is incorporated by reference from the registrant's definitive Proxy Statement for its 2015 Annual Meeting of Stockholders if filed with the Securities and Exchange Commission no later than 120 days after the end of the registrant's fiscal year covered by this report or, alternatively, by amendment to this Form 10-K under cover of Form 10-K/A no later than the end of such 120 day period.



AMERICAN MEDIA, INC.
 
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended March 31, 2015
 
TABLE OF CONTENTS
 
 
  Page(s)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





2


American Media, Inc. and its consolidated subsidiaries are referred to in this Annual Report on Form 10-K (this "Annual Report") as American Media, AMI, the Company, we, our and us.

Our fiscal year ended on March 31, 2015 and is referred to herein as fiscal 2015. References to our fiscal year (e.g. "fiscal 2015") refer to our fiscal year ended March 31st of the applicable year.


CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

This Annual Report for the fiscal year ended March 31, 2015 contains forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Securities Exchange Act"). These forward-looking statements relate to our current beliefs regarding future events or our future operating or financial performance. By their nature, forward-looking statements involve risks, trends, and uncertainties that could cause actual results to differ materially from those anticipated in any forward-looking statements.

Such factors include, but are not limited to, those items described in "Risk Factors" in Item 1A of this Annual Report and those discussed in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7, as well as other factors.

We have tried, where possible, to identify such statements by using words such as "believes," "expects," "intends," "estimates," "may," "anticipates," "will," "likely," "project," "plans," "should," "could," "potential" or "continue" and similar expressions in connection with any discussion of future operating or financial performance. Any forward-looking statement is and will be based upon our then current expectations, estimates and assumptions regarding future events and is applicable only as of the dates of such statement. We may also make written and oral forward-looking statements in the reports we file from time to time with the Securities and Exchange Commission (the "SEC").

We caution you not to place undue reliance on any forward-looking statement, which speaks only as of the date of this Annual Report. We undertake no obligation to publicly update or revise any forward-looking statement contained in this Annual Report, whether as a result of new information, future events or otherwise, except as required by law.

INDUSTRY DATA AND CIRCULATION INFORMATION

This Annual Report includes publishing industry data, rankings, circulation information, Internet user data, readership information and other industry and market information that we obtained from various third-party sources, internal company sources and public filings. Third-party sources include, but are not limited to, the Alliance for Audited Media, comScore Media Metrix, Publishers Information Bureau, Google Analytics, BPA Circulation Statements, GfK Mediamark Research & Intelligence and Statement of Ownership figures filed with the U.S. Postal Service. Although we have not independently verified the data contained in these industry publications and reports, we believe based on our industry experience that this data is reliable. Our estimates, in particular as they relate to our general expectations concerning the publishing industry, involve risks and uncertainties and are subject to change based on various factors. See Item 1A, “Risk Factors.”

Unless otherwise indicated, all average circulation information for our publications is a per issue average of actual single copy circulation and subscription copies for fiscal 2015. All references to "circulation" are to single copy newsstand sales and paid subscription circulation, unless otherwise specified. References to “verified non-paid subscriptions” are to non-paid subscription copies designated by publishers for readership in public places or intended for individual use by recipients who are likely to have a strong affinity for the content of the publication.


3


PART I

Item 1. Business.

OVERVIEW

American Media, Inc. together with its subsidiaries (collectively, the "Company", "AMI", "we", "our" or "us") is one of the largest publishers of celebrity and health and active lifestyle magazines in the United States, with a diversified portfolio of 10 publications that have a combined monthly print and digital audience of more than 40 million readers and monthly on-line audience of approximately 49 million readers.

In January 2015, we sold our Shape, Fit Pregnancy and Natural Health publications, which comprised our Women's Active Lifestyle segment, for approximately $60 million in cash plus an earnout of up to $60 million. As a result, the operations of the Women's Active Lifestyle segment have been classified as discontinued operations in all periods presented. We also sold our Country Weekly publication for approximately $3 million in November 2014. The operations of Country Weekly did not meet the criteria for discontinued operations presentation. For additional information on these dispositions, see Note 10, "Dispositions and Acquisitions," to our consolidated financial statements included elsewhere in this Annual Report.

After giving effect to the divestiture of our Women's Active Lifestyle segment, our remaining well-known publications cover two primary operating segments: Celebrity and Men's Active Lifestyle. Within our Celebrity segment, our portfolio of brands includes: National Enquirer, Star, OK!, Globe, National Examiner and Soap Opera Digest. Within our Men's Active Lifestyle segment, our portfolio of brands include: Men's Fitness, Muscle & Fitness, Muscle & Fitness Hers, Flex, Mr. Olympia and international editions of Muscle & Fitness and Flex.

Total circulation of our remaining print publications with a frequency of six or more times per year, were approximately 3.2 million copies per issue during fiscal 2015 and 3.5 million copies per issue during fiscal 2014 and 2013. Our celebrity titles together are number one in market share in newsstand circulation in the celebrity category and, on-line, are the fastest growing brands in the category. Our men's titles have the highest market share of national magazine advertising pages in their competitive set in the United States.

We believe our leadership position in these segments provides us with strong competitive advantages in the publishing market. Our iconic brands have enabled us to build a loyal readership and establish relationships with major advertisers and distributors. We have leveraged the strength of our portfolio of brands through joint ventures, licensing opportunities, and strategic relationships with several national retailers. We believe the combination of our well-known brands, established relationship with advertisers and distributors, and ability to leverage our brands with major retailers and to monetize content across multiple platforms creates a competitive position that is difficult to replicate.

Our brands go beyond the printed page. We engage an audience of more than 89 million men and women every month through not only magazines and books, but also social media, television, and on all digital platforms, from phones and tablets to laptops and desktops. We are embarking on a transformation from being a leading media company to a lifestyle brand that informs and entertains while also selling nutritional products and recreational activities.

DESCRIPTION OF BUSINESS

The sale of magazines to consumers via newsstand sales, also known as single copy sales, and subscriptions (our circulation revenue) is our largest revenue stream generating more than half of our total operating revenues. The sale of advertising across our multiple platforms generates approximately one-quarter of our total revenues. The remaining operating revenues are generated by our other operations related to our brands.

We are experiencing declines in our circulation revenue and print advertising as a result of market conditions in the magazine publishing industry. These declines are primarily caused by the disruption in our wholesaler distribution channel (discussed below), the overall decline in the celebrity newsstand market and the decline in the consumer advertising market coupled with the shift in advertising dollars from print to digital. Our financial performance depends, in large part, on varying conditions in the markets we serve. Demand in these markets tends to fluctuate in response to overall economic conditions and current events. Since magazines are generally discretionary purchases for consumers, our circulation revenues are sensitive to economic downturns. Adverse changes in the markets we serve generally result in reductions in revenue as a result of lower consumer spending, which can lead to a reduction in advertising revenue.

See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations." The majority of our operating revenues are generated in the United States. See Note 13, "Business Segment Information" to our consolidated financial statements included elsewhere in this Annual Report for certain information by geographic area.


4


Operating Revenues

Circulation

Circulation is an important component in determining our advertising revenues because advertising rates are dependent on circulation and audience. Single copy newsstand units are sold through national distributors, wholesalers and retailers. Subscriptions are sold primarily through direct mail, subscription sales agents or digitally via the Internet. Additionally, digital-only subscriptions and single-copy digital issues of our magazines are sold or distributed through various app stores and other digital storefronts.

Our print circulation revenue represented 68% of our total operating revenues in fiscal 2015, of which 78% was generated by single copy newsstand sales and 22% was generated by subscriptions. In fiscal 2014 and 2013, print circulation revenue represented 65% and 68%, respectively, of total operating revenues.

As of March 31, 2015, our print publications comprised approximately 24% of total U.S. and Canadian newsstand circulation for weekly publications that are audited by the Alliance for Audited Media. In addition, as of March 31, 2015, our digital subscriptions represent 20% of our 2.1 million paid subscriptions, the highest percentage among our competitive set. Our digital subscription revenue represented 1% of our total operating revenues for fiscal 2015, 2014 and 2013.

Newsstand Sales

Single copy newsstand units are sold through traditional newsstands as well as supermarkets, convenience stores, pharmacies and other retail outlets. Newsstand sales are highly sensitive to cover selection, retail placement and other factors. Through our relationships with national distributors, wholesalers and retailers, we market and arrange for the distribution of our magazines to retailers and the billing and the collection processes pursuant to multi-year arrangements.

We rely on wholesalers for the retail distribution of our magazines. A small number of wholesalers are responsible for a substantial percentage of the wholesale magazine distribution business. The decline in magazine sales at newsstands and other retail outlets have increased the financial instability of magazine wholesalers. Several of our wholesalers, including our former second-largest wholesaler, Source Interlink Companies ("Source"), ceased operation during 2014.

In addition to our relationships with our national distributors and wholesalers, we also have direct relationships with retailers, to which we make payments for the prominent display and sale of our magazines at the checkout section of supermarkets. In addition, we may make incentive payments to qualifying retailers for selling our magazines in their stores or for the space our magazines occupy in the retailers' store.

Advertising

Our second largest revenue stream comes from multi-platform advertising. Our print advertising revenue, generated primarily by national advertisers, represented 23% of our total operating revenues for fiscal 2015 and 2014 and 21% of our total operating revenues for fiscal 2013 and our digital advertising revenue represented 15%, 11% and 5%, respectively, of our total advertising revenue. Our digital advertising revenue represented 4%, 3% and 1%, respectively, of our total operating revenues for fiscal 2015, 2014 and 2013. Advertising revenue is typically highest in the fourth quarter of our fiscal year due to seasonality. See "Seasonality" within this Item 1, "Business," for further information.

We conduct our advertising sales through a combination of corporate and brand sales and marketing teams that sell advertising across multiple media platforms. We integrate editorial, print, digital, mobile and events into one advertising package, creating lasting consumer engagement and generating attractive returns for our advertisers. Our advertising clients are primarily in the packaged goods, sports nutrition products, automotive, entertainment, pharmaceutical, sports apparel, beauty, cosmetics, fashion and direct response sectors.

The rate at which we sell print advertising is dependent on each magazine's rate base, which is the circulation of the magazine that we guarantee to our advertisers, as well as our audience size. If we are not able to meet our committed rate base, the price paid by advertisers is generally subject to downward adjustments, including in the form of future credits or discounts. Our published rates for each of our magazines are subject to negotiation with each of our advertisers.


5


Other

We have a number of other operations related to publishing. In December 2014, we entered into a multi-year e-commerce partnership with GNC Holdings, Inc., across our health and fitness websites. The "Shop GNC" stores offer a selection of GNC products curated by the editors of our health and fitness publications in addition to access to the full GNC.com assortment of products. This is the first partnership of its kind for GNC's e-commerce business with a global media and content partner such as AMI. We also have a long-term agreement with GNC for publishing print editions of our Men's Fitness magazine (and Shape magazine pursuant to a licensing agreement) in a combined special interest publication distributed in over 4,200 GNC stores, on a quarterly basis, in North America.

Last year, we became a strategic partner to Microsoft and produced Men's Fitness and Muscle & Fitness branded exercise and workout videos for Microsoft to incorporate into their Bing Health and Fitness application. This year, we entered into multiple contracts with Microsoft to create and provide additional exercise and workout videos, as well as providing our content for syndication, to be distributed through Microsoft offerings.

Operating Expenses

Our primary operating expenses consist of production, distribution, circulation and other cost of sales, as well as selling, general and administrative expenses.

We incur most of our operating expenses during the production of our printed magazines, which includes costs for printing and paper. Paper is the principal raw material utilized in our publications. We have a long-term paper supply and purchasing agreement with the largest paper supply broker in the United States which manages all aspects of our raw material paper inventory. The price of paper is driven by market conditions and therefore difficult to predict. Changes in paper prices could significantly affect our business. We believe adequate supplies of paper are available to fulfill our planned, as well as future, publishing requirements. We have long-term printing contracts with three major third-party printing companies. Our production expenses, including paper and printing costs, accounted for approximately 26%, 30% and 28% of our operating expenses for fiscal 2015, 2014 and 2013, respectively.

Distribution, circulation and other cost of sales consist primarily of postage and the cost of freight to our wholesalers and fulfillment companies for newsstand and subscription distribution. Also included in this category are editorial expenses which represent costs associated with manuscripts, photographs and related salaries. Our distribution, circulation and other cost of sales accounted for approximately 16% of our operating expenses for fiscal 2015 and 18% for each of fiscal 2014 and 2013.

Subscription copies of our magazines are distributed primarily through the United States Postal Service (USPS) as periodicals mail. We coordinate with our printers and local USPS distribution centers to achieve efficiencies in our production and distribution processes and to minimize mail processing costs and delays. However, we are subject to the postal rate increases that affect delivery costs associated with our magazines. In January 2015, the USPS applied to the Postal Regulation Commission to increase rates by approximately 2% for all classes of mail effective April 2015. The USPS has received acceptance for the rate increase which went into effect on May 31, 2015. Increases in postal rates are factored into our pricing, however, there can be unexpected increases in postal rates or other delivery charges. See Item 1A, "Risk Factors - Our business and results of operations could be negatively affected by postal service changes, and our results of operations may be adversely affected by increases in postal rates." Subscription postage accounted for approximately 40%, 34% and 32%, respectively, of our distribution and circulation expenses for fiscal 2015, 2014 and 2013.


6


RECENT DEVELOPMENTS

The Merger

In August 2014, we entered into an agreement and plan of merger (the "Merger Agreement") with AMI Parent Holdings, LLC, a Delaware limited liability company (the "Parent"), which is controlled by certain investors of AMI (collectively, the "Investors"), and AMI Merger Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent (the "Merger Sub"), whereby the Merger Sub was merged with and into AMI (the "Merger") with AMI surviving the Merger as a wholly-owned subsidiary of the Parent. As a result of the Merger, the Parent acquired 100% of the issued and outstanding shares of common stock of AMI. See "-Merger and Related Transactions" below for further information regarding the Merger Agreement and related transactions.

See Note 14, "Capital Structure" to our consolidated financial statements included elsewhere in this Annual Report for further information regarding our capital structure.

Debt Related Transactions

In connection with the Merger, AMI entered into a note purchase agreement (the "Note Purchase Agreement") with the Investors pursuant to which AMI issued to the Investors approximately $12.3 million in aggregate principal amount of senior secured notes, which bear interest at a rate of 10% per annum, payable in kind, and mature in June 2018 (the "Second Lien PIK Notes").

In September 2014, AMI entered into an exchange agreement (the "Debt for Equity Exchange Agreement") with the Parent and the Investors pursuant to which the Investors exchanged approximately $121.1 million in aggregate principal amount of senior secured notes of AMI, consisting of $113.3 million in aggregate principal amount of Second Lien PIK Notes (including the $12.3 million issued in connection with the Note Purchase Agreement) and $7.8 million in aggregate principal amount of senior secured notes, which bear interest at a rate of 13.5% per annum and mature in June 2018 (the "Second Lien Notes"), plus accrued and unpaid interest of approximately $2.9 million, for equity interests in the Parent (the "Conversion").

In January 2015, AMI exchanged approximately $32.0 million in aggregate principal amount of senior secured notes, which bear interest at a rate of 11.5% per annum and mature in June 2017 (the "First Lien Notes"), plus accrued and unpaid interest, held by the Investors, for approximately $39.0 million aggregate principal amount of new second lien senior secured notes, which bear interest at a rate of 7.0% per annum and mature in July 2020 (the "New Second Lien Notes"), pursuant to an exchange agreement (the "New Second Lien Notes Exchange Agreement").

During fiscal 2015, AMI repurchased approximately $56.1 million in aggregate principal amount of senior secured notes, consisting of $55.5 million in aggregate principal amount of First Lien Notes and $0.6 million in aggregate principal amount of Second Lien Notes, plus accrued and unpaid interest, in the open market, from the Investors.

In February 2015, we amended and restated the revolving credit facility (the "Amended and Restated Revolving Credit Facility") to, among other things, extend the maturity date to December 2016, reduce the borrowing capacity from $40.0 million to $35.0 million and amend the first lien leverage ratio and certain other covenants and provisions.

See Note 4, "Revolving Credit Facility" and Note 5, "Senior Secured Notes" to our consolidated financial statements included elsewhere in this Annual Report for further information regarding our debt agreements.

BUSINESS SEGMENTS

Our three business segments are described below. Additional financial information relating to these segments may be found in Note 13, "Business Segment Information" in consolidated financial statements contained elsewhere in this Annual Report, which information is incorporated herein by reference.

Celebrity Brands

Our six celebrity magazines maintain a 35% share-of-market, selling approximately 0.9 million copies per week, or $4.5 million in retail dollars. In fiscal 2015, they accounted for 73% of our total operating revenues. Circulation revenues were 85% of this segment in fiscal 2015, with print and digital advertising revenue representing the balance.


7


This segment consists of the following brands in print and digital:

National Enquirer, a weekly, hard news, investigating tabloid covering all celebrities, crime, human interest, health, fashion and beauty;

Star, a weekly, celebrity-focused, news-based, glossy magazine covering movie, television, reality series and music celebrities. Star's editorial content includes fashion, beauty, accessories and health sections;

OK!, a younger weekly, celebrity-friendly, news-based, glossy magazine covering the stars of movies, television, reality and music. OK!’s editorial content has fashion, beauty and accessories sections; OKMagazine.com differentiates itself through its use of online communities and social media to encourage a dialog between users, including their editorial point of view;

Globe, a weekly tabloid that focuses on older movie and television celebrities, the royal family, political scandals and investigative crime stories that are less mainstream and more salacious than the National Enquirer;

National Examiner, a weekly tabloid (currently only available in print format) consisting of celebrity and human interest stories, differentiating it from the other titles through its upbeat positioning as the source for gossip, contests, women’s service and good news for an older tabloid audience; and

Soap Opera Digest, a weekly magazine that provides behind-the-scenes scoop and breaking news to passionate soap opera fans every week; SoapOperaDigest.com is a companion site that mirrors the magazine's editorial point of view.

Special Interest Publications. In addition to our periodic publications, we occasionally publish special interest publications. The content of our special interest publications is based on an iconic event allowing us to leverage our distribution network to generate additional revenues. Our special interest publications are sold at newsstands and may include advertising. In fiscal 2015, we published the following special interest publications:

O.J, Marilyn & Diana, Robin Williams, and Elvis under the National Enquirer brand;

JFK, Jr., Plastic Surgery, Hottest Diets and Marilyn Monroe FBI tapes under the Star brand;

Kate Middleton, Kate, and Kardashians under the OK! brand;

Jackie O, Serial Killers, Kidnapped, and 200 Stars Behind Bars under the Globe brand; and

Days of our Lives under the Soap Opera Digest brand.

Certain information related to our Celebrity publications is as follows:
 
 
Frequency (per annum)
 
 
 
Website Unique Visitors (monthly average)
Brand
 
 
2015 Rate Base
 
National Enquirer
 
52 x
 
n/a
 
816,248
Star
 
52 x
 
800,000
 
n/a
OK!
 
52 x
 
500,000
 
6,329,066
Globe
 
52 x
 
n/a
 
18,898
National Examiner
 
52 x
 
n/a
 
n/a
Soap Opera Digest
 
52 x
 
140,000
 
450,757


8


The following table sets forth the average circulation (per issue) and U.S. cover prices for our Celebrity segment:

(in thousands, except cover price information)
 
March 31, 2015
 
March 31, 2014
 
March 31, 2013
National Enquirer
 
 
 
 
 
 
Total circulation
 
415

 
516

 
560

Subscription circulation
 
110

 
120

 
132

Single copy circulation
 
305

 
396

 
428

Cover price
 
$4.99
 
$4.99
 
$3.99
Star
 
 
 
 
 
 
Total circulation
 
826

 
803

 
774

Subscription circulation
 
608

 
501

 
436

Single copy circulation
 
218

 
302

 
338

Cover price
 
$4.99
 
$4.99
 
$3.99
OK!
 
 
 
 
 
 
Total circulation
 
432

 
507

 
497

Subscription circulation
 
313

 
352

 
314

Single copy circulation
 
119

 
155

 
183

Cover price
 
$4.99
 
$4.99
 
$3.99
Globe
 
 
 
 
 
 
Total circulation
 
201

 
246

 
261

Subscription circulation
 
27

 
28

 
30

Single copy circulation
 
174

 
218

 
231

Cover price
 
$4.99
 
$3.99
 
$3.99
National Examiner
 
 
 
 
 
 
Total circulation
 
82

 
104

 
107

Subscription circulation
 
9

 
10

 
10

Single copy circulation
 
73

 
94

 
97

Cover price
 
$4.99
 
$3.99
 
$3.79
Soap Opera Digest
 
 
 
 
 
 
Total circulation
 
138

 
154

 
181

Subscription circulation
 
85

 
93

 
118

Single copy circulation
 
53

 
61

 
63

Cover price
 
$4.99
 
$3.99
 
$3.99

The cover prices increased for National Enquirer, Star and OK! from $3.99 to $4.99 effective with the March 24, 2014 issue. For National Examiner the cover price increased from $3.79 to $3.99 effective with the June 17, 2013 issue and the subsequent increase from $3.99 to $4.99 was effective with the May 12, 2014 issue. The cover prices increased for Globe and Soap Opera Digest from $3.99 to $4.99 effective with the May 12, 2014 issue.


9


Men's Active Lifestyle

In fiscal 2015, our Men's Active Lifestyle segment accounted for 24% of our total operating revenues. A new editorial team has transformed our flagship in the category, Men's Fitness, from a gym magazine to a men's lifestyle guide and continues to attract new advertisers. During fiscal 2015, there were over 100 new lifestyle advertisers, such as Grey Goose, HBO, Garnier, Mazda, Smart Water, New Balance, Dick's Sporting Goods and DSW, which had not previously invested in Men's Fitness. Newsstand buyers continue to respond, and with a 15% jump in single-copy sales, Men's Fitness experienced the strongest increase among its competitive set in fiscal 2015. Traffic has increased on-line as well. Mensfitness.com page views for March 2015 were 30 million, up 76% year-over-year.

Men's Fitness is more than a publication. In partnership with Random House, we published The 101 Greatest Workouts of all Time, which went on sale in January 2014. Events such as our Ultimate Athlete test both sports skills and strength, and bring the Men's Fitness reader to life for our advertisers, delivering millions of dollars in incremental ad revenue through sponsorship and increased print and digital advertising.

The growth story continues across other men's active lifestyle brands. Traffic continues to increase on-line for MuscleandFitness.com with 49 million page views in March 2015, up 47% year-over-year. Each year we host the body building industry's biggest consumer health and fitness event built around our Mr. Olympia competition in Las Vegas.

Advertisers crave the audience for these brands: men age 18 to 34 years old. Revenues from print and digital advertising are 64% of the segment’s revenues in fiscal 2015, while circulation revenues are 21% and the Mr. Olympia event represents the balance. This segment consists of the following brands in print and digital:

Men’s Fitness, an active lifestyle magazine for men 18-34 years old, which positions fitness as the new measure of success, as reflected in its editorial coverage of men’s fashion, grooming, automotive, finance, travel and other lifestyle categories; Men’s Fitness is also home to the latest in exercise techniques, sports training, nutrition and health; Men’sFitness.com provides everything for every man in terms of a healthy and fit lifestyle;

Muscle & Fitness, a fitness physique training magazine appealing to exercise enthusiasts and athletes of all ages, especially those focused on resistance training, body fat control, sports nutrition and supplements; MuscleandFitness.com provides workout videos and nutritional advice;

Flex, a magazine devoted to professional bodybuilding featuring nutrition, supplement, and performance science content for bodybuilding enthusiasts and coverage of all professional and amateur bodybuilding contests; Flexonline.com features online coverage of all the major bodybuilding competitions, as well as training videos with today’s top bodybuilders;

Muscle & Fitness Hers, a fitness physique training magazine designed for the active woman who wants more out of fitness, especially those who work extra hard to achieve a "super-fit" lifestyle, which covers training, nutrition, health, beauty and fashion for today's women; muscleandfitnesshers.com provides expert fitness and lifestyle tips for women to improve strength, muscle growth, endurance, health and style;

Mr. Olympia, a four-day event held annually in September in Las Vegas attracting over 50,000 fans of bodybuilding and fitness experts from around the world; includes a two-day health and fitness expo with 340 exhibitors including physical exercise challenges and merchandising opportunities that culminates with the world's most prestigious and largest event in bodybuilding and fitness, the Mr. Olympia contest; and

Weider UK, a wholly-owned subsidiary, publishes Muscle & Fitness and Flex in the United Kingdom, France and Germany and licenses the content in Holland and Australia, which are excluded from the table below. Each market edition is in a local language with local content and has its own website. Effective April 1, 2015, we relocated the business activities for these publications from the United Kingdom to our New York offices.

10


Certain information related to our Men's Active Lifestyle publications is as follows:
 
 
Frequency (per annum)
 
 
 
Website Unique Visitors (monthly average)
Brand
 
 
2015 Rate Base
 
Men's Fitness
 
10 x
 
600,000
 
9,790,586
Muscle & Fitness
 
10 x
 
n/a
 
6,614,557
Flex
 
10 x
 
n/a
 
807,360
Muscle & Fitness Hers
 
6x
 
n/a
 
230,129

The following table sets forth the average circulation (per issue) and U.S. cover prices for our Men's Active Lifestyle segment:

(in thousands, except cover price information)
 
March 31, 2015
 
March 31, 2014
 
March 31, 2013
Men's Fitness
 
 
 
 
 
 
Total circulation
 
671

 
598

 
575

Subscription circulation
 
558

 
494

 
485

Single copy circulation
 
113

 
104

 
90

Cover price
 
$4.99
 
$4.99
 
$4.99
Muscle & Fitness
 
 
 
 
 
 
Total circulation
 
315

 
327

 
322

Subscription circulation
 
260

 
256

 
253

Single copy circulation
 
55

 
71

 
69

Cover price
 
$6.99
 
$6.99
 
$6.99
Flex
 
 
 
 
 
 
Total circulation
 
75

 
79

 
67

Subscription circulation
 
59

 
57

 
44

Single copy circulation
 
16

 
22

 
23

Cover price
 
$6.99
 
$6.99
 
$6.99
Muscle & Fitness Hers
 
 
 
 
 
 
Total circulation
 
85

 
92

 
86

Subscription circulation
 
42

 
41

 
36

Single copy circulation
 
43

 
51

 
50

Cover price
 
$4.99
 
$4.99
 
$4.99

During the second quarter of fiscal 2015, we recorded a pre-tax non-cash impairment charge of $17.4 million for the Men's Active Lifestyle segment goodwill and tradenames. Additional information regarding impairments may be found in Note 3, "Goodwill and Other Identified Intangible Assets" in the consolidated financial statements included elsewhere in this Annual Report.

Corporate and Other

In fiscal 2015, our Corporate and Other segment accounted for 3% of our total operating revenues and includes revenues from international licensing of certain health and fitness publications, photo syndication for all our media content platforms and strategic management services for publishers, including back office functions. The video content services we provide to Microsoft and the services provided by our former distribution services group to publishing and non-publishing clients, such as placement and monitoring of supermarket racks, marketing and merchandising, are also included in this segment.

Corporate overhead expenses are not allocated to other segments and are included in this segment. This includes corporate executives, production, circulation, information technology, accounting, legal, human resources, business development and administrative department costs.


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COMPETITION

Publishing is a highly competitive business and we compete with other magazine publishers for advertising market share and for the time and attention of consumers of print magazine content. We also compete with digital publishers and other forms of media, including websites, digital magazines and mobile apps.

Competition among print magazine and digital publishers for advertising is primarily based on the circulation and readership of magazines and the number of visitors to websites, in addition to, the demographic profile of the audience, advertising rates and the effectiveness of our advertising sales teams. The continuing shift in consumer preference from print media to digital media has introduced significant new competition for advertising. Competition among print magazine publishers for magazine readership is based primarily on brand perception, magazine cover selection, content, quality, price, as well as placement and display in retail outlets.

Our magazine publishing and website operations compete with numerous other magazine and website publishers and other media for circulation and audience. The use of digital devices as distribution platforms for content has increased competition for our business. See the section titled “Risk Factors—We face significant competition from other magazine publishers and other forms of media, including digital media, which we expect will continue, and as a result we may not be able to maintain or improve our operating results and competitive position.” We believe our advertising sales team has the optimal structure to provide compelling integrated marketing solutions for our advertising clients.

Our Celebrity Brands segment competes for readership and advertising dollars with Time, Inc. (People Magazine), Bauer Publishing (In Touch, Life & Style and Closer) and Wenner Media (US Weekly). Our Men's Active Lifestyle segment competes for readership and advertising dollars with Rodale (Men's Health), Wenner Media (Men's Journal) and Conde Naste (GQ). Our special interest publications can compete with a variety of magazines, depending on the focus of the particular issue.

INTELLECTUAL PROPERTY

We use multiple trademarks to distinguish our various publications and brands. These trademarks are the subject of registrations and pending applications filed by us for use with a variety of products and other content, both domestically and internationally, and we continue to expand our worldwide usage and registration of related trademarks. As of March 31, 2015, we had 53 registered trademarks in the United States and 135 corresponding trademarks registered in foreign countries relating to our brand names.

We protect our copyrighted content by registering our publications with the United States Copyright Office.  Our extensive portfolio consists of approximately 3,443 copyrights including, but not limited to: National Enquirer, Star, OK!, Globe, National Examiner, Soap Opera Digest, Men's Fitness, Flex, Muscle & Fitness and Muscle & Fitness Hers. We also file copyright registrations for our special interest publications.

We regard our rights in and to our trademarks and copyrights as valuable assets. Accordingly, to protect our trademarks and copyrights against infringement and denigration by third parties, we control access to our proprietary technology and other confidential information through a combination of confidentiality and license agreements with our employees, consultants, and third parties with whom we have relationships. We also monitor the marketplace for third-party infringement and enforce our rights under trademark, copyright and other applicable laws. Despite our efforts to protect our proprietary rights through intellectual property rights, licenses, and confidentiality agreements, we may not be able to prevent unauthorized parties from using our brand names and content.

GOVERNMENT REGULATIONS

Marketing Regulation

Advertising and promotional information and our other marketing activities are subject to federal and state consumer protection laws that regulate unfair and deceptive practices. In the United States, Congress has adopted legislation that regulates certain aspects of the Internet, including online content, user privacy, taxation, liability for third-party activities and jurisdiction. Federal, state, local and foreign governments are also considering other legislative and regulatory proposals that would regulate the Internet in more and different ways than exist today.


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Postal Regulation

The distribution of our magazine subscriptions are affected by the laws and regulations of the U.S. Postal Service (the “USPS”). The Governors of the USPS review prices for mailing services annually and adjust postage rates periodically. We continually seek the most economical and effective methods for mail delivery, including cost-saving strategies offered within the postal rate structure. The financial condition of the USPS continues to decline. If postal reform legislation is enacted, it could result in, among other things, increases in postal rates, local post office closures and the elimination of Saturday mail delivery. The elimination of current protections against significant and unpredictable rate increases or other changes to the USPS as a result of the enactment of postal reform legislation could have an adverse effect on our businesses.

SEASONALITY

Our business has always experienced seasonality, which we expect will continue, due to advertising patterns based on consumer reading habits. Fluctuations in quarterly performance are also due to variations in our publication schedule and variability of audience traffic on our websites. Not all of our publications are published on a regular schedule throughout the year. Additionally, the publication schedule for our special interest publications can vary and lead to quarterly fluctuations in our operating results.

Advertising revenue from our magazines and websites is typically highest in our fourth fiscal quarter due to our health and fitness magazines. During our fourth fiscal quarter, which begins on January 1st, advertisers and consumers are focused on the "New Year and New You." Certain newsstand costs vary from quarter to quarter, particularly marketing costs associated with the distribution of our magazines.

EMPLOYEES

As of March 31, 2015, we employed approximately 384 full-time and 96 part-time employees. We consider relations with our employees to be good.

AVAILABLE INFORMATION

Our Internet site is www.americanmediainc.com. Our Registration Statement, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and any amendments to these documents, as well as certain other forms we file with or furnish to the SEC, can be viewed and downloaded free of charge as soon as reasonably practicable after they have been filed with the SEC by accessing www.sec.gov or visiting www.americanmediainc.com and clicking on About Us and Investor Relations. Please note that information on, or that can be accessed through, our website is not deemed “filed” with the SEC and is not incorporated by reference into any of our filings under the Securities Act or the Securities Exchange Act, irrespective of any general incorporation language contained in such filing.

THE MERGER AND RELATED TRANSACTIONS

In August 2014, AMI entered into the Merger Agreement with the Parent and the Merger Sub, whereby the Merger Sub was merged with and into AMI with AMI surviving the Merger as a wholly-owned subsidiary of the Parent. As a result of the Merger, the Parent acquired 100% of the issued and outstanding shares of common stock of AMI.

In connection with the Merger, AMI entered into the Note Purchase Agreement with the Investors pursuant to which AMI issued additional Second Lien PIK Notes to the Investors at par plus accrued and interest for a total purchase price equal to $12.5 million.

Prior to the execution of the Merger Agreement and the Note Purchase Agreement, AMI entered into various supplemental indentures to, among other things, permit the transactions contemplated by the Merger Agreement and the Note Purchase Agreement and eliminate AMI's obligation to repurchase approximately $12.7 million of First Lien Notes, during fiscal 2015, pursuant to the terms of the indenture of certain senior secured notes and the exchange agreement related to such certain senior secured notes.

In addition, in August 2014, AMI entered into an amendment to the revolving credit facility (the "2010 Revolving Credit Facility") to, among other things, (i) amend the definition of "Change of Control" to permit the Merger, (ii) permit the issuance of additional Second Lien PIK Notes pursuant to the Note Purchase Agreement and (iii) amend the first lien leverage ratio to be equal to or less than 5.25 to 1.00 from April 1, 2014 through and including the quarter ending June 30, 2015. From July 1, 2015 through December 31, 2015, the maturity date of the 2010 Revolving Credit Facility, the first lien leverage ratio must be equal to or less than 4.50 to 1.00, the ratio in effect prior to the amendment.


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See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Revolving Credit Facility and Senior Secured Notes" for further information regarding the Merger and related transactions.

HISTORY

American Media, Inc. was incorporated under the laws of the State of Delaware in 1990 and its wholly-owned subsidiary, American Media Operations, Inc., or AMOI, conducted all of AMI’s operations and represented substantially all of AMI’s assets. In November 2010, AMO Escrow Corporation ("AMO Escrow") was formed as an indirect, wholly-owned subsidiary of AMOI for the sole purpose of issuing the First Lien Notes (as defined below) prior to the 2010 Restructuring described below. In December 2010, AMO Escrow merged with and into AMOI, and AMOI merged with and into American Media, Inc., as the surviving corporation in the merger. Given American Media Inc., was a holding company with only one subsidiary and owned 100% of AMOI, the merger did not result in a change in the historical cost basis of AMI’s consolidated assets and liabilities. As the merger occurred between entities under common control, the historical consolidated financial statements of AMOI have been presented as the consolidated financial statements of AMI and the financial information contained herein has been prepared and presented as if AMI had always been the reporting company. The merger of AMOI with and into American Media, Inc. was unrelated to the 2010 restructuring discussed below.

2010 RESTRUCTURING

In November 2010, the Company and certain subsidiaries filed a prepackaged plan of reorganization (the “Plan”) under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. The Plan identified liabilities subject to compromise of $893.9 million, which included an outstanding term loan of $445.7 million, a revolving credit facility of $60.0 million and previously issued notes of $388.2 million (the “Old Notes”). In December 2010, the Bankruptcy Court confirmed the Plan and the Company emerged from bankruptcy and consummated a financial restructuring through a series of transactions (the “2010 Restructuring”).

As part of the 2010 Restructuring, we amended and restated our certificate of incorporation to, among other things, increase the number of shares authorized to be issued from 11,000,000 to 15,000,000, comprised of 14,000,000 shares of common stock and 1,000,000 shares of preferred stock. We issued 10,000,000 shares of new common stock and canceled all pre-existing equity interests in AMI, including warrants. We did not issue any shares of preferred stock.

Upon emergence, the Company determined it did not meet the requirements to apply fresh start accounting under applicable accounting standards because the holders of existing voting shares immediately before confirmation of the 2010 Restructuring received more than 50% of the voting shares in the emerging Company. Since fresh start accounting did not apply, assets and liabilities not subject to compromise continue to be reflected at historical cost. However, liabilities compromised by confirmed plans were accounted for, as summarized below, in accordance with the guidance provided for reporting entities not qualifying for fresh start accounting.

We exchanged $363.3 million of our Old Notes for 10,000,000 shares of newly issued common stock. The holders of the pre-existing debt also held shares of common stock that were canceled in connection with the 2010 Restructuring. Since this exchange occurred with pre-existing stockholders, the extinguishment of debt transaction was recorded as a capital transaction. As a result, the $587.0 million gain on this debt-for-equity exchange is reflected in the Consolidated Statement of Stockholders' Deficit for fiscal 2011. The gain on the exchange primarily consists of (i) $363.3 million of Old Notes, (ii) $282.7 million of canceled stock and (iii) $176.1 million of forfeited future interest payments on the Old Notes, less (iv) issuance of $235.8 million of equity.

We satisfied the term loan and revolving credit facility of $505.7 million with cash on hand and the proceeds from the issuance of new debt. Specifically, we issued $385.0 million aggregate principal amount of First Lien Notes and $80.0 million aggregate principal amount of Second Lien Notes. We also exchanged $24.9 million of the remaining Old Notes for $24.9 million of Second Lien Notes. Finally, we entered into a $40.0 million revolving credit facility, maturing in December 2015 (the “2010 Revolving Credit Facility”) which replaced our previous revolving credit facility. Under the 2010 Restructuring, the proceeds from the First Lien Notes and the Second Lien Notes and the 2010 Revolving Credit Facility were used to pay (i) the net carrying amount of the term loan and revolving credit facility, including a deferred consent fee and (ii) a 2% make-whole provision. In accordance with applicable accounting standards, the Company recorded this series of transactions as an extinguishment of debt and reflected the $8.6 million loss on extinguishment of debt for fiscal 2011.


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Item 1A. Risk Factors.

Our business faces many risks. Any of the following risks could materially and adversely affect our business, financial condition, results of operations, prospects and cash flows and the actual outcome of matters as to which forward-looking statements are made in this Annual Report. While we believe we have identified and discussed below the material risks affecting our business, there may be additional risks and uncertainties that we do not presently know or that we do not currently believe to be material that may adversely affect our business, financial condition and results of operations in the future.

Our substantial indebtedness and our ability to incur additional indebtedness could adversely affect our business, financial condition and results of operations.

Our future performance could be affected by our substantial indebtedness. As of March 31, 2015, our total outstanding indebtedness was approximately $324.3 million, consisting of $275.2 million principal amount of debt under the First Lien Notes, $2.2 million principal amount of debt under the Second Lien Notes, $32.2 million principal amount of debt under the New Second Lien Notes (the First Lien Notes, the Second Lien Notes and the New Second Lien Notes are collectively referred to herein as the "Senior Secured Notes") and $14.7 million amount of debt under the Amended and Restated Revolving Credit Facility. Our total consolidated interest expense was $50.8 million for fiscal 2015, which consists of interest under the Senior Secured Notes and the Amended and Restated Revolving Credit Facility. In addition, the Amended and Restated Revolving Credit Facility and the indentures governing the Senior Secured Notes contain certain covenants that, subject to certain exceptions, restrict us from paying dividends, incurring additional debt, creating liens, entering into certain mergers or consolidations, making acquisitions or other investments and selling or otherwise disposing of assets.

Our level of indebtedness could have important consequences for our business and operations, including the following:

require us to dedicate a substantial portion of our cash flow from operations for payments on indebtedness, thereby reducing the availability of such cash flow to fund working capital, capital expenditures and general corporate requirements or to carry out other aspects of our business;

place us at a potential disadvantage compared to our competitors that have less debt;

increase our vulnerability to general adverse economic and industry conditions;

limit our ability to make material acquisitions or take advantage of business opportunities that may arise;

limiting our flexibility in planning for, or reacting to, changes in our business industry;

limit our ability to obtain additional financing to fund future working capital, capital expenditures and other general corporate requirements or to carry out other aspects of our business; and

expose us to fluctuations in interest rates as the Amended and Restated Revolving Credit Facility has a variable rate of interest.

Under the Amended and Restated Revolving Credit Facility, we have to comply with a maximum first lien leverage ratio, a consolidated leverage ratio and an interest coverage ratio. Our ability to satisfy these ratios is dependent on our business performing in accordance with our projections. If the performance of our business deviates from our projections, we may not be able to satisfy these ratios. If we do not comply with these or other covenants and restrictions, we would be in default under our Amended and Restated Revolving Credit Facility unless we obtained a waiver from the required lenders thereunder. Our outstanding debt under our Amended and Restated Revolving Credit Facility, together with accrued interest, could then be declared immediately due and payable and commitments thereunder could be terminated. Our ability to comply with such provisions may be affected by events beyond our control. Moreover, the instruments governing almost all our other debt contain cross-acceleration provisions so that acceleration under any of our debt may result in a default under our other debt instruments. If a cross-acceleration occurs, the maturity of almost all our debt could be accelerated and become immediately due and payable. If that happens, we would not be able to satisfy our debt obligations, which would have a substantial adverse effect on our ability to continue as a going concern.


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Obligations under our Amended and Restated Revolving Credit Facility are secured by liens on substantially all our assets and the assets of certain domestic subsidiaries. In addition, our obligations under our Amended and Restated Revolving Credit Facility are secured by a pledge of all the issued and outstanding shares of, or other equity interests in, certain of our existing or subsequently acquired or organized domestic subsidiaries and a percentage of the capital stock of, or other equity interests in, certain of our existing or subsequently acquired or organized foreign subsidiaries. If we, or one of our restricted subsidiaries, should be declared bankrupt or insolvent, or if we otherwise default under our Amended and Restated Revolving Credit Facility, the lenders could declare all the funds borrowed thereunder, together with accrued interest, immediately due and payable and commitments thereunder could be terminated. If we were unable to repay such debt, the lenders could foreclose on the pledged stock of our subsidiaries and on the assets in which they have been granted a security interest.

If our operations do not generate sufficient cash flow from operations to satisfy our debt service obligations, we may need to borrow additional funds to make these payments or undertake alternative financing plans, such as refinancing or restructuring our indebtedness, disposing of assets or reducing or delaying capital investments and acquisitions. We cannot guarantee that such additional funds or alternative financing will be available on favorable terms, if at all. Our inability to generate sufficient cash flow from operations or obtain additional funds or alternative financing on acceptable terms could have a material adverse effect on our business, financial condition and results of operations. We cannot assure you that our business will generate sufficient cash flows from operations or that we can obtain alternative financing proceeds in an amount sufficient to enable us to service our indebtedness, or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all.

Changes in our credit ratings or macroeconomic conditions may affect our liquidity, increasing borrowing costs and limiting our financing options.
Our corporate credit rating is currently rated below investment grade by Standard & Poor’s. If our credit ratings are lowered further, borrowing costs for future long-term debt or short-term borrowing facilities may increase and our financing options would be limited. A reduction in our credit rating or the credit rating of our outstanding debt securities may also cause our future borrowings to be subject to additional restrictive covenants that would reduce our flexibility. In addition, macroeconomic conditions, such as continued or increased volatility or disruption in the credit markets, could adversely affect our ability to refinance existing debt or obtain additional financing to support operations or to fund new acquisitions or capital-intensive internal initiatives.
If we fail to implement our business strategy, our business will be adversely affected.

Our future financial performance and success are dependent in large part upon our ability to successfully implement our business strategy. We may not be able to successfully implement our business strategy or improve our operating results. In particular, we may not be able to increase circulation of our publications, obtain new sources of advertising revenues, generate additional revenues by building on the brand names of our publications or raise the cover prices of our publications without causing a decline in circulation.

Any failure to successfully implement our business strategy may adversely affect our ability to service our indebtedness, including our ability to make principal and interest payments on the debt. We may, in addition, decide to alter or discontinue certain aspects of our business strategy at any time.

We face significant competition from other magazine publishers and other forms of media, including digital media, which we expect will continue, and as a result we may not be able to maintain or improve our operating results and competitive position.

We compete in varying degrees with other magazine publishers for market share and for the time and attention of consumers of print magazine content. We believe the overall decline in consumer demand for print magazines has been negatively impacted by the multitude of choices available to consumers for information and entertainment which has intensified our competition with other magazine publishers for share of print magazine readership. Competition among print magazine publishers for magazine readership is based primarily on brand perception, magazine cover selection and content, quality and price as well as placement and display in retail outlets.


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We also compete with digital publishers and other forms of media, including websites, digital magazines, tablet editions and mobile apps. The competition we face has intensified as a result of the growing popularity of mobile devices such as tablets and smartphones. Consumers are increasingly opting to consume publisher's content through these digital platforms and are shifting away from print media. These new platforms have reduced the cost of producing and distributing content on a wide scale, allowing new free or low-priced digital content providers to compete with us and other print magazine publishers. The ability of our paid print and digital content to compete successfully with free and low-priced digital content depends on several factors, including our ability to differentiate and distinguish our content from free or low-priced digital content, as well as our ability to increase the value of paid subscriptions to our customers by offering a different, deeper and richer digital experience. If we are unable to distinguish our content from that of our competitors or adapt to new distribution methods, our business, financial condition and results of operations may be adversely affected.

Competition among print magazine and digital publishers for advertising is primarily based on the circulation and readership of magazines and the number of visitors to websites, respectively, the demographic profile of the audience, advertising rates and the effectiveness of advertising sales teams. The continuing shift in consumer preference from print media to digital media has introduced significant new competition for advertising. We believe our advertising sales team has the optimal structure to provide integrated marketing solutions for combined print and digital advertising and we can compete successfully for advertising. If we are unable to convince advertisers of the continuing value of our combined print and digital advertising platforms or offer advertisers unique advertising programs tied to our brands, our business, financial condition and results of operations may be adversely affected.

We are exposed to risk associated with weak domestic and global economic conditions.

We have been adversely affected by weak domestic and global economic conditions and have experienced declines in our circulation and to a lesser extent our advertising revenues. If these conditions persist, our business, financial condition and results of operations may continue to be adversely affected. Factors that affect economic conditions include the rate of unemployment, the level of consumer confidence and changes in consumer spending habits. Because magazines are generally discretionary purchases for consumers, our circulation revenues are sensitive to general economic conditions and economic cycles. Certain economic conditions such as general economic downturns, including periods of increased inflation, unemployment levels, tax rates, interest rates, gasoline and other energy prices or declining consumer confidence, negatively impact consumer spending. Reduced consumer spending or a shift in consumer spending patterns away from discretionary items will likely result in reduced demand for our magazines.

Historically, we have been able to offset some of the declines in circulation revenues, in part, through increases in cover prices and cost reductions. We may not be able to increase cover prices without decreasing circulation or be able to take other measures, such as increasing advertising rates or pages and reducing print orders of our titles, to offset such circulation revenue declines. In addition, we may not be able to reverse the circulation revenue declines described above, and such declines in circulation could have a material adverse effect on our business, financial condition and results of operations.

We also face risks associated with the impact of weak domestic and global economic conditions on third parties with which we do business, such as advertisers, suppliers, wholesale distributors, retailers and other parties. For example, if retailers file for reorganization under bankruptcy laws or otherwise experience negative effects on their businesses due to volatile or weak economic conditions, it could reduce the number of outlets for our magazines, which in turn could reduce the attractiveness of our magazines to advertisers. In addition, any financial instability of the wholesalers that distribute our print magazines to retailers could have various negative effects on us. See “—We have experienced, and may in the future continue to face increased costs and business disruption from instability in our wholesaler distribution channels.”

We derive substantial revenues from the sale of advertising, and a decrease in overall advertising expenditures could lead to a reduction in the amount of advertising that companies are willing to purchase from us and the price at which they purchase it. Expenditures by advertisers tend to be cyclical, reflecting domestic and global economic conditions. If the economic prospects of advertisers or current economic conditions worsen, such conditions could alter current or prospective advertisers’ spending priorities. Declines in consumer spending on advertisers’ products due to weak economic conditions could also indirectly negatively impact our advertising revenues, as advertisers may not perceive as much value from advertising if consumers are purchasing fewer of their products or services.


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We have experienced, and may in the future continue to face increased costs and business disruption from instability in our wholesaler distribution channels.

We operate a distribution network that relies on wholesalers to distribute our magazines to newsstands and other retail outlets. A small number of wholesalers are responsible for a substantial percentage of wholesale magazine distribution in the United States. We are experiencing significant declines in magazine sales at newsstands and other retail outlets. In light of these declines and the challenging general economic climate, there may be further consolidation among the wholesalers and one or more may become insolvent or unable to pay amounts due in a timely manner. Distribution channel disruptions can impede our ability to distribute magazines to the retail marketplace, which could, among other things, negatively affect the ability of certain magazines to meet the rate base established with advertisers. Disruption in the wholesaler channel, an increase in wholesaler costs or the failure of wholesalers to pay amounts due could adversely affect our business, financial condition and results of operations. See also “Our circulation revenue consists of single copy sales distributed to retailers primarily by two wholesalers and the loss of either of these wholesalers could materially adversely affect our business and results of operations.”

Our circulation revenue consists of single copy sales distributed to retailers primarily by two wholesalers and the loss of either of these wholesalers could materially adversely affect our business and results of operations.

During fiscal 2015 single copy sales accounted for 78% of total circulation revenue and 79% during fiscal 2014 and 2013 and consisted of copies distributed to retailers primarily by two wholesalers. During fiscal 2015, 2014 and 2013, The News Group accounted for approximately 36%, 29% and 29%, respectively, of our total operating revenue and Hudson Group accounted for approximately 9%, 8% and 9%, respectively. We have long-term service arrangements with our wholesalers, which provide incentives to maintain certain levels of service. When these arrangements expire, we may not be able to renew them on favorable terms, extend the terms of these arrangements or extend our relationship with the wholesalers at all. Our business, financial condition and results of operations could be adversely affected by disruption of the distribution of our magazines through these wholesalers.

In May 2014, Source, our second-largest wholesaler at such time, notified us that they were ceasing substantially all distribution operations in the near term and filed for bankruptcy in June 2014.

Changes to U.S. or international regulation of our business or the businesses of our advertisers could cause us to incur additional costs or liabilities, negatively impact our revenues or disrupt our business practices.

Our digital businesses are subject to government regulation in the jurisdictions in which we operate, and our Web sites, which are available worldwide, may be subject to laws regulating the Internet even in jurisdictions where we do not do business. Advertising and promotional information presented to visitors on our websites and our other marketing activities are subject to federal and state consumer protection laws that regulate unfair and deceptive practices. In the United States, Congress has adopted legislation that regulates certain aspects of the Internet, including on-line content, user privacy, taxation, liability for third-party activities and jurisdiction. Federal, state, local and foreign governments are also considering other legislative and regulatory proposals that would regulate the Internet in more and different ways than exist today. We may incur increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply. Revenues from our digital businesses could be adversely affected, directly or indirectly, by these existing or future laws and regulations.
Our business performance is also indirectly affected by the laws and regulations that govern the businesses of our advertisers. For example, the pharmaceutical industry, which accounts for a significant portion of our advertising revenues in our Men's Active Lifestyle segment, is subject to regulations of the Food and Drug Administration in the United States requiring pharmaceutical advertisers to communicate certain disclosures to consumers about advertised pharmaceutical products, typically through the purchase of print media advertising. We face the risk that the Food and Drug Administration could change pharmaceutical marketing regulations in a way that is detrimental to the sale of print advertising.

In addition, changes in laws and regulations that currently allow us to retain customer data and to engage in certain forms of consumer marketing, such as automatic renewal of subscriptions for our magazines and negative option offers via direct mail, email, on-line or telephone solicitation, could have a negative impact on our circulation revenues and adversely affect our financial condition and operating performance.


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Our business and results of operations could be negatively affected by postal service changes, and our results of operations may be adversely affected by increases in postal rates.

The financial condition of the U.S. Postal Service (the “USPS”) continues to decline. In the past the USPS closed numerous mail processing centers and has announced plans to close additional processing centers in 2014, which could result in slower delivery of first class mail and periodicals. The USPS is currently prohibited under a Congressional resolution from discontinuing Saturday mail delivery, but the USPS and some members of Congress are attempting to lift that ban as part of comprehensive postal reform. Our subscribers expect our weekly magazines to be delivered in the same week that they are printed, and the elimination of Saturday mail delivery or slower delivery of periodicals, absent changes to our internal production schedules, could result in a certain percentage of our weekly magazines not reaching subscribers until the following week. We cannot predict how the USPS will address its fiscal condition in the future, and changes to delivery, reduction in staff or additional closings of processing centers may lead to changes in our internal production schedules or other changes in order to continue to meet our subscribers’ expectations.

Other measures taken to address the declining financial condition of the USPS could include increases in the rates for periodicals and local post office closures. We cannot predict with certainty the magnitude of future price changes in postage. In particular, postage represents a significant component of our total cost to distribute our printed products and represented approximately 6% of our total operating expense for fiscal 2015. If there are significant increases in postal rates and we are not able to offset such increases, our results of operations could be negatively impacted.

Our business and results of operations may be adversely affected by increases in fuel costs and the price of paper.

Many aspects of our business have been directly affected by increases in the cost of fuel and paper. Increased fuel costs have translated into increased costs for the products and services we receive from our third-party suppliers, including, but not limited to, increased production and distribution costs for our products. Paper represents a significant component of our total cost to produce our printed products and represented approximately 11% of our total operating expenses for fiscal 2015. Paper is a commodity and the price has been subject to significant volatility due to supply and demand in the marketplace as well as volatility in the raw material and other costs incurred by our paper suppliers. Although we have a long-term paper supply and purchasing agreement with the largest paper supply broker, we do not have any long-term pricing agreements with paper suppliers and suppliers may raise their prices for paper from time to time.

We cannot predict with certainty the magnitude of future price changes in paper or how increases in fuel costs will affect our third-party suppliers and the rates they charge us. If fuel or paper prices increase and we are not able to offset such increases, our business, financial condition and results of operations would be adversely affected.

Our business may be adversely affected if we lose one or more of our vendors.

We rely on third-party vendors, including paper suppliers, printers, subscription fulfillment houses and subscription agents for the print portion of our business. The industries in which our print-related third-party vendors operate have experienced significant restructurings and consolidation in recent years, resulting in decreased availability of goods and services and competition. Further disruptions in these industries may make our third-party vendors unable or unwilling to provide us with goods and services on favorable terms and may lead to greater dependence on certain vendors, increased prices, and interruptions and delays in the services provided by these vendors, all of which would adversely affect our business.

We may suffer credit losses that could adversely affect our results of operations.

We extend unsecured credit to most of our customers. We recognize that extending credit and setting appropriate reserves for receivables is largely a subjective decision based on knowledge of the customer and the industry. Credit exposure also includes the amount of estimated unbilled sales. The level of credit is influenced by the customer’s credit history with us and other available information, including industry-specific data.

We maintain a reserve account for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to pay, additional allowances might be required, which could have a material adverse effect on our business, results of operations and financial condition.


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Future acquisitions, partnerships, publishing services agreements and joint ventures may require significant resources.

In the future, we may seek to grow the Company and its businesses by making acquisitions or entering into partnerships, publishing services agreements or joint ventures. Any future acquisition, partnership, publishing services agreement or joint venture may require that we make significant cash investments, issue stock or incur substantial indebtedness. Such acquisitions and investments may require additional funding which may be provided in the form of additional indebtedness, equity financing or a combination thereof. We cannot assure that any such additional funding will be available to us on acceptable terms, or at all, or that we will be permitted under the terms of the Amended and Restated Revolving Credit Facility (or any replacement thereof) or under the terms of the indentures governing our Senior Secured Notes to obtain such financing for such purpose.

We have incurred indebtedness in the past to finance acquisitions. We may finance future acquisitions with additional indebtedness, subject to limits in our debt agreements. As a result, we could face the financial risks associated with incurring additional indebtedness such as reducing our liquidity and access to financing markets and increasing the amount of cash flow required to service such indebtedness.

We may make acquisitions or enter into partnerships, publishing services agreements or joint ventures which could involve inherent risk and uncertainties.

We may make acquisitions or enter into partnerships, publishing services agreements or joint ventures which could involve inherent risks and uncertainties, including:

difficulty in integrating newly acquired businesses and operating in an efficient and effective manner;

the inability to maintain key pre-acquisition business relationships;

the potential diversion of senior management's attention from our operations;

the potential loss of key employees of the acquired businesses;

risks associated with integrating financial reporting and internal control systems;

exposure to unanticipated liabilities; and

challenges in achieving strategic objectives, cost savings and other anticipated benefits.

If an acquired business fails to operate as anticipated, cannot be successfully integrated with our existing business or one or more of the other risk and uncertainties identified above occur, our business, results of operations and financial condition could be adversely affected.

We are expanding our merchandising and licensing programs into new areas and products, the failure of any of which could diminish the perceived value of our brand, impair our ability to grow and adversely affect our prospects.
Our growth depends to a significant degree upon our ability to develop new or expand existing retail merchandising programs. We have entered into several new merchandising and licensing agreements in the past few years. Some of these agreements include exclusivity provisions and have a duration of many years. While we require that our licensees maintain the quality of our respective brands through specific contractual provisions, we cannot be certain that our licensees, or their manufacturers and distributors, will honor their contractual obligations or that they will not take other actions that will diminish the value of our brands.
There is also a risk that our extension into new business areas will meet with disapproval from consumers. We cannot guarantee that these programs will be fully implemented, or, if implemented, that they will be successful. If the licensing or merchandising programs do not succeed, we may be prohibited from seeking different channels for our products due to the exclusivity provisions and multi-year terms of these agreements. Disputes with new or existing licensees may arise that could hinder our ability to grow or expand our product lines. Disputes also could prevent or delay our ability to collect the licensing revenue that we expect in connection with these products. If such developments occur or our merchandising programs are otherwise not successful, the value and recognition of our brands, as well as our business, financial condition and prospects, could be materially adversely affected.

20


Divestitures may affect our costs, revenues, profitability and financial position.
In January 2015, we sold our Shape, Fit Pregnancy and Natural Health publications, which comprised our Women's Active Lifestyle segment. We may decide to divest other segments or lines of business in the future. Divestitures have inherent risks, including possible delays in closing transactions, the risk of lower-than-expected sales proceeds for the divested businesses, unexpected costs associated with the separation of the business to be sold from our integrated information technology systems and other operating systems and potential post-closing claims for indemnification. Expected cost savings, which are offset by revenue losses from divested businesses, may also be difficult to achieve or maximize.
Electronically stored data is subject to the risk of unauthorized access and if our data is compromised in spite of our attempts at protecting this data, we may incur significant costs, lost opportunities and damage to our reputation.

We maintain information necessary to conduct our business, including confidential, proprietary and personal information in digital form. Data maintained in digital form is subject to the risk of intrusion, tampering and theft. We develop and maintain systems to prevent this from occurring, but the development and maintenance of these systems is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated. Moreover, despite our efforts, the possibility of intrusion, tampering and theft cannot be eliminated entirely, and risks associated with each of these remain. If our data systems are compromised or if the proprietary information of our customers or employees is misappropriated, our ability to conduct our business may be impaired, our reputation with our customers and employees may be injured resulting in loss of business or morale and we could be exposed to a risk of loss due to business interruption, or litigation.

If we are unable to protect our intellectual property, the value of our intangible assets may be diminished and our competitive position and business may be adversely affected.

Our business relies on a combination of trade secrets, trademarks, tradenames, copyrights and other proprietary rights, as well as contractual arrangements, including licenses, to establish and protect our intellectual property and brand names. Our continued success and competitive position depends on our proprietary trademarks, copyrights and other intellectual property rights. See "Business - Intellectual Property" for a description of our intellectual property assets and the steps we take to protect them.

Other parties may infringe on our intellectual property rights and may thereby dilute the value of our brands in the marketplace. Brand dilution or the introduction of competitive brands could cause confusion in the marketplace and adversely affect the value that consumers associate with our brands, thereby negatively impacting our sales. Any such infringement of our intellectual property rights would also likely result in a commitment of our time and resources, financial or otherwise, to protect these rights through litigation or other means. In addition, third parties may assert claims against our intellectual property rights and we may not be able to successfully resolve those claims causing us to lose our ability to use our intellectual property that is the subject of those claims. Such loss could have a material adverse effect on our business, financial condition and results from operations. Furthermore, from time to time, we may be involved in litigation in which we are enforcing or defending our intellectual property rights, which could require us to incur substantial fees and expenses and have a material adverse effect on our business, financial condition and results from operations.

Our performance could be adversely affected if we lose our key personnel.

We believe that our success is largely dependent on the abilities and experience of our senior management team. The loss of the services of one or more of these senior executives could adversely affect our ability to effectively manage our overall operations or successfully execute current or future business strategies. We do not maintain key man life insurance on the lives of our senior management. We have entered into employment agreements or arrangements with our senior management team, which may contain non-compete provisions. While we believe that we could find replacements for these key personnel, the loss of their services could disrupt our business and have a significant adverse effect on our results of operations and financial condition.

Our operating results are subject to seasonal variations.

Our business has experienced, and is expected to continue to experience, seasonality due to, among other things, seasonal advertising patterns and seasonal influences on consumer reading habits. Typically, our revenues from advertising are highest in the fourth quarter. The effects of such seasonality make it difficult to estimate future operating results based on the previous results of any specific quarter.


21


Pending and future litigation or regulatory proceedings could materially affect our operations.

Since the focus of some of our publications often involves celebrities or controversial subjects and because of our news gathering techniques, the risk of defamation or invasion of privacy litigation or the filing of criminal charges exists. While we have not historically experienced any difficulty obtaining insurance coverage, we cannot assure that we will be able to do so in the future at rates acceptable to us, or at all. In addition to the celebrity litigation in which we may be involved, from time to time we may be involved in commercial litigation. Any pending or future litigation or regulatory proceeding, if adversely determined, could have a material adverse effect on our business, results of operations and financial condition.

Terrorist attacks and other acts of violence or war may affect the financial markets and our business, results of operations and financial condition.
Terrorist attacks may negatively affect our operations and financial condition. There can be no assurance that there will not be further terrorist attacks against the United States or U.S. businesses. These attacks or armed conflicts may directly impact our physical facilities, such as those in New York City, or those of our retailers, suppliers and customers. These events could cause consumer confidence and their discretionary spending to decrease or result in increased volatility in the U.S. and world financial markets and economy. They could result in an economic recession in the United States or abroad. Any of these occurrences could have a material adverse impact on our business, results of operations and financial condition.
If our goodwill or other identifiable intangible assets become impaired, we may be required to record a significant charge to earnings.

Under U.S. generally accepted accounting principles, goodwill and indefinite-lived intangible assets are required to be tested for impairment annually or more often if an event occurs or circumstances change that would indicate a potential impairment exists, and long-lived assets, including finite-lived intangible assets, are required to be tested for impairment upon the occurrence of a triggering event. Factors that could lead to impairment of goodwill and indefinite-lived intangible assets include significant adverse changes in the business climate and declines in the value of our business.

During an evaluation of goodwill and other identified intangible assets at September 30, 2014, the Company determined that indicators were present in certain reporting units which would suggest the fair value of the reporting unit may have declined below the carrying value. This decline was primarily due to the continuing softness in the consumer magazine sector, which impacts consumer and advertising spending, including further declines in certain advertising markets, resulting in lowered future cash flow projections. The evaluation resulted in the carrying value of tradenames for certain reporting units to exceed the estimated fair value. As a result, the Company recorded a pre-tax non-cash impairment charge of $17.4 million to reduce the carrying value of tradenames and goodwill during the second quarter of fiscal 2015.

As of March 31, 2015, the net book value of our goodwill and other intangible assets was approximately $378.2 million. Changes in management's judgments and projections or assumptions used could result in a significantly different estimate of fair value and could materially change the impairment charge related to goodwill and tradenames.

Some provisions of Delaware law and our amended and restated certificate of incorporation may deter third parties from acquiring us.

Provisions contained in our amended and restated certificate of incorporation and the laws of Delaware, the state in which we are incorporated, could make it more difficult for a third party to acquire us, even if doing so might be beneficial to our stockholders. Provisions of our amended and restated certificate of incorporation impose various procedural and other requirements, which could make it more difficult for stockholders to effect certain corporate actions. These anti-takeover defenses could discourage, delay or prevent a transaction involving a change in control. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors of their choosing and cause us to take other corporate actions that our stockholders desire.

If we do not maintain an effective system of internal controls over financial reporting and disclosure controls, our operating results and reputation would be harmed.

Effective internal controls over financial reporting and disclosure controls are necessary for us to provide reliable financial reports, effectively prevent fraud and operate successfully. If we cannot provide reliable financial reports or prevent fraud, our operating results and reputation would be harmed. As part of our ongoing monitoring, we may discover material weaknesses or significant deficiencies in our internal control over financial reporting that require remediation.


22


We cannot assure that material weaknesses or significant deficiencies, to the extent they exist, in internal controls over financial reporting or disclosure controls would be identified in the future. Any failure to maintain effective controls or timely effect any necessary improvement of our internal controls over financial reporting and disclosure controls could, among other things, result in losses from fraud or error, cause us not to satisfy our reporting obligations, cause investors to lose confidence in our reported financial information or harm our reputation, all of which could have a material adverse effect on our business, results of operations and financial condition.

Our financial statements are subject to changes in accounting standards that could adversely impact our profitability or financial position.

Our financial statements are subject to the application of accounting principles generally accepted in the United States of America (“US GAAP”), which are periodically revised and/or expanded. Accordingly, from time to time we are required to adopt new or revised accounting standards issued by recognized authoritative bodies, including the Financial Accounting Standards Board. The impact of accounting pronouncements that have been issued but not yet implemented is disclosed in our annual and quarterly reports. An assessment of proposed standards is not provided, as such proposals are subject to change through the exposure draft process and, therefore, their effects on our financial statements cannot be meaningfully assessed. It is possible that future accounting standards we are required to adopt could change the current accounting treatment that we apply to our consolidated financial statements and that such changes could have a material adverse effect on the reported results of operations and financial position.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

The following table sets forth certain information concerning the location, use and approximate square footage of our principal locations as of March 31, 2015, all of which are leased:
Location
 
Principal Use
 
Approximate Area in Square Feet
Boca Raton, FL
 
Editorial offices for our Celebrity Brands segment, administrative offices for our Publishing Services segment and executive administrative offices
 
55,660

New York, NY
 
Editorial and sales offices for all of our segments and executive administrative officers
 
99,054

Los Angeles, CA
 
Editorial offices for our Celebrity Brands segment
 
10,509


The leases for our offices and facilities expire between 2015 and 2022, and some of these leases are subject to renewal. We believe that our existing facilities are well maintained and in good operating condition.

Item 3.     Legal Proceedings.

On March 10, 2009, Anderson News, L.L.C. and Anderson Services, L.L.C., magazine wholesalers (collectively, “Anderson”), filed a lawsuit against American Media, Inc., DSI (now known as In-Store Services, Inc.), and various magazine publishers, wholesalers and distributors in the Federal District Court for the Southern District of New York (the “Anderson Action”). Anderson's complaint alleged that the defendants violated Section 1 of the Sherman Act by engaging in a purported industry-wide conspiracy to boycott Anderson and drive it out of business. Plaintiffs also purported to assert claims for defamation, tortious interference with contract and civil conspiracy. The complaint did not specify the amount of damages sought. On August 2, 2010, the District Court dismissed the action in its entirety with prejudice and without leave to replead and, on October 25, 2010, denied Anderson's motion for reconsideration of the dismissal decision. Anderson appealed the District Court's decisions.

On April 3, 2012, the Second Circuit issued a decision reversing the dismissal of the lawsuit and reinstating the antitrust and state law claims (except the defamation claim, which Anderson withdrew), and, on January 7, 2013, the United States Supreme Court declined to review the Second Circuit decision. Following the Second Circuit decision, the case has been proceeding in the District Court and the parties engaged in discovery. Fact discovery was completed in May 2014 and expert discovery was completed in October 2014. Anderson submitted an expert report calculating that damages are approximately $470 million, which would be subject to trebling should Anderson prevail against the defendants in the lawsuit. Defendants, including American Media, Inc. and DSI, also have submitted an expert report on damages, which opines that, separate and apart from the question of liability, Anderson has suffered no damages.


23


Anderson is in chapter 11 bankruptcy proceedings in Delaware bankruptcy court. On June 10, 2010, American Media, Inc. filed a proof of claim in that proceeding for $5.6 million (which it amended on December 3, 2013 to reflect the counterclaim (described below) it planned to file in the Anderson Action), but Anderson asserts that it has no assets to pay unsecured creditors like American Media, Inc. An independent court-appointed examiner has identified claims that Anderson could assert against Anderson insiders in excess of $340.0 million.

In an order of the Delaware bankruptcy court, entered on November 14, 2011, American Media, Inc. and four other creditors (collectively, the “Creditors”), which also are defendants in the Anderson Action, were granted the right to file lawsuits against Anderson insiders asserting Anderson's claims identified by the examiner. The Creditors' retention of counsel to pursue the claims on a contingency fee basis was also approved. On November 14, 2011, pursuant to this order, a complaint was filed against 10 defendants. After a temporary stay of discovery pending conclusion of fact discovery in the Anderson Action, discovery in the bankruptcy action proceeded. On December 12, 2014, defendants in the adversary action moved for partial summary judgment seeking dismissal of certain of the Creditors’ claims. The motion was fully briefed on April 20, 2015.

By order dated November 6, 2013, the Delaware bankruptcy court granted American Media, Inc. and four of its co-defendants relief from the automatic bankruptcy stay of litigation against Anderson News, L.L.C. so that they could file a counterclaim in the Anderson Action against Anderson News, L.L.C. alleging that Anderson News, L.L.C. had violated the antitrust laws by engaging in a conspiracy to fix prices that wholesalers would pay publishers for their magazines and seeking an unspecified amount of damages to be proved at trial. Permission was obtained on January 23, 2014 from the District Court to file the counterclaim against Charles Anderson, Jr. and Anderson News, L.L.C. American Media, Inc. filed its amended answer and counterclaim in the Anderson Action on February 14, 2014. On December 15, 2014, the parties in the Anderson Action filed motions for summary judgment and to strike certain proposed expert testimony. The briefing on these motions was completed on April 17, 2015 and a hearing regarding these motions has been scheduled for July 22, 2015.

While it is not possible to predict the outcome of the Anderson Action or to estimate the impact on American Media, Inc. and DSI of a final judgment against American Media, Inc. and DSI (if that were to occur), American Media, Inc. and DSI believe that the claims asserted by Anderson, in the Anderson Action, are meritless. American Media, Inc. and DSI have antitrust claim insurance that covers defense costs. American Media, Inc. and DSI have filed a claim for insurance coverage with regard to the Anderson Action and certain of their defense costs are being paid by the insurer, and, in the event of a settlement or a damages award by the Court and subject to the applicable policy limits, American Media, Inc. and DSI anticipate seeking reimbursement from the insurer for payment of such settlement or damages. American Media, Inc. and DSI will continue to vigorously defend the case.

In addition, because the focus of some of our publications often involves celebrities and controversial subjects, the risk of defamation or invasion of privacy litigation exists. Our experience indicates that the claims for damages made in celebrity lawsuits are usually inflated and such lawsuits are usually defensible and, in any event, any reasonably foreseeable material liability or settlement would likely be covered by insurance, subject to any applicable deductible. We also periodically evaluate and assess the risks and uncertainties associated with our pending litigation disregarding the existence of insurance that would cover liability for such litigation. At present, in the opinion of management, after consultation with outside legal counsel, the liability resulting from pending litigation, even if insurance were not available, is not expected to have a material effect on our consolidated financial statements.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

All of our outstanding shares of common stock are privately held and there is no established public market for our shares. As a result of the Merger, the Parent acquired 100% of the issued and outstanding shares of common stock of AMI in August 2014.

We did not make any dividend payments in fiscal 2015, 2014 or 2013, and we do not anticipate paying any dividends on our common stock in the foreseeable future. The terms of our Amended and Restated Revolving Credit Facility restrict our ability to pay dividends, and any future indebtedness that we may incur could preclude us from paying dividends. With respect to the dividend restriction, the Amended and Restated Revolving Credit Facility and the Indentures include a cap on the total amount of cash available for distribution to our common stockholders.


24


For information regarding our capital structure and former equity compensation plans, see Note 14, "Capital Structure" in the notes to consolidated financial statements contained elsewhere in this Annual Report.

Item 6.    Selected Financial Data.

The following table sets forth selected historical consolidated financial information of American Media, Inc. as of and for each year in the five-year period ended March 31, 2015. The selected historical consolidated financial data as of March 31, 2015 and 2014 and for each of the years in the three-year period ended March 31, 2015 are derived from our historical consolidated financial statements included elsewhere in this Annual Report. The selected historical consolidated financial data for all other periods presented were derived from our audited consolidated financial statements that are not included elsewhere in this Annual Report.

You should review the selected historical financial data presented below in conjunction with our consolidated financial statements and the accompanying notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations," included elsewhere in this Annual Report. As a result of the sale of the Shape, Fit Pregnancy and Natural Health publications, the operations of AMI's former Women's Actively Lifestyle segment have been classified as discontinued operations for all periods presented. The prior year amounts have been recast to reflect the sale of the Women's Actively Lifestyle segment as discontinued operations.
 
Fiscal Year Ended March 31,
(in thousands)
2015
 
2014
 
2013
 
2012
 
2011
Results of Operations
 
 
 
 
 
 
 
 
 
     Circulation
$
166,199

 
$
187,613

 
$
202,958

 
$
217,866

 
$
215,869

     Advertising
67,258

 
72,953

 
65,212

 
72,134

 
76,564

     Other
11,723

 
26,780

 
28,464

 
31,544

 
32,789

          Total operating revenues
245,180

 
287,346

 
296,634

 
321,544

 
325,222

Operating expenses
250,961

 
253,561

 
297,607

 
268,217

 
246,753

Operating income (loss)
(5,781
)
 
33,785

 
(973
)
 
53,327

 
78,469

Other expenses, net
(51,150
)
 
(60,098
)
 
(61,464
)
 
(61,535
)
 
(94,002
)
Income tax provision (benefit)
(15,689
)
 
30,659

 
(6,436
)
 
(22,457
)
 
(1,839
)
Income (loss) from continuing operations
(41,242
)
 
(56,972
)
 
(56,001
)
 
14,249

 
(13,694
)
Income from discontinued operations, net of income taxes
15,334

 
3,701

 
456

 
8,044

 
9,731

Net income (loss)
(25,908
)
 
(53,271
)
 
(55,545
)
 
22,293

 
(3,963
)
Less: net income attributable to noncontrolling interests
(1,219
)
 
(1,048
)
 
(694
)
 
(726
)
 
(510
)
Net income (loss) attributable to American Media, Inc. and subsidiaries
$
(27,127
)
 
$
(54,319
)
 
$
(56,239
)
 
$
21,567

 
$
(4,473
)
 
March 31,
(in thousands)
2015
 
2014
 
2013
 
2012
 
2011
Cash and cash equivalents
$
3,452

 
$
3,030

 
$
2,358

 
$
5,218

 
$
21,276

Goodwill and other identified intangible assets, net
378,179

 
398,323

 
409,919

 
460,713

 
441,485

Total assets
466,025

 
572,640

 
506,494

 
575,457

 
557,790

Total debt, net of premium and discount
324,269

 
498,477

 
481,889

 
476,889

 
489,889

Total stockholders' deficit
(36,948
)
 
(131,973
)
 
(77,762
)
 
(21,349
)
 
(42,878
)

25


Notes to Selected Financial Data

Net (loss) income attributable to American Media, Inc. and subsidiaries for fiscal year

2015 includes non-cash goodwill and tradename impairment charges related to certain reporting units of approximately $17.4 million, AMI's share of share of bad debt and other expenses related to wholesaler shutdowns of approximately $8.4 million, costs related to restructuring and severance of approximately $7.1 million and Merger and related transaction costs of approximately $4.8 million.

2014 includes non-cash tradename impairment charges related to certain reporting units of approximately $9.2 million and AMI's share of bad debt related to Source and other wholesaler shutdowns of approximately $5.1 million.

2013 includes non-cash goodwill and tradename impairment charges related to certain reporting units of approximately $50.6 million.

2011 includes reorganization costs of approximately $24.5 million and a loss on extinguishment of debt of approximately $8.6 million.

Total stockholders' deficit includes approximately $121.5 million in fiscal 2015 related to the exchange of debt for equity in connection with the Conversion and fiscal 2011 includes a gain on restructuring of approximately $587.0 million related to the exchange of debt for equity in connection with the 2010 Restructuring.

Item 7.     Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of financial condition and results of operations was prepared to provide the reader with a view and perspective of our business through the eyes of management and should be read together with the consolidated financial statements and the accompanying notes included elsewhere in this Annual Report. This discussion and analysis contains statements that constitute forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including but not limited to those discussed in "Cautionary Statements Regarding Forward-Looking Information" and "Risk Factors" included in this Annual Report.

ORGANIZATION OF INFORMATION

Our discussion is presented in the following sections:

Executive Summary

Recent Developments and Management Action Plans

Results of Operations

Operating Segments

Liquidity and Capital Resources

Contractual Obligations and Other Commitments

Seasonality and Quarterly Fluctuations

Off-Balance Sheet Financing

Application of Critical Accounting Estimates

Recently Adopted and Recently Issued Accounting Pronouncements


26


EXECUTIVE SUMMARY

American Media, Inc. together with its subsidiaries (collectively, the "Company", "AMI", "we", "our" or "us") is one of the largest publishers of celebrity and health and active lifestyle magazines in the United States, with a diversified portfolio of 10 publications that have a combined monthly print and digital audience of more than 40 million readers and monthly on-line audience of approximately 49 million readers.

In January 2015, we sold our Shape, Fit Pregnancy and Natural Health publications, which comprised our Women's Active Lifestyle segment, for approximately $60 million in cash plus an earnout of up to $60 million. As a result, the operations of the Women's Active Lifestyle segment have been classified as discontinued operations in all periods presented. After giving effect to the divestiture of our Women's Active Lifestyle segment, we report under a new segment structure beginning in the fourth quarter of fiscal 2015 and accordingly have recast prior period segment amounts.

Our remaining well-known publications cover two primary operating segments: Celebrity and Men's Active Lifestyle. Within our Celebrity segment, our portfolio of brands includes: National Enquirer, Star, OK!, Globe, National Examiner and Soap Opera Digest. Within our Men's Active Lifestyle segment, our portfolio of brands include: Men's Fitness, Muscle & Fitness, Muscle & Fitness Hers and Flex. Our third, non-operating segment, Corporate and Other, includes our international licensing of certain health and fitness publications, photo syndication for all our media content platforms and strategic management services for publishers.

We believe our leadership position in these segments provides us with strong competitive advantages in the publishing market. Our iconic brands have enabled us to build a loyal readership and establish relationships with major advertisers and distributors. We have leveraged the strength of our portfolio of brands through joint ventures, licensing opportunities, and strategic relationships with several national retailers. We believe the combination of our well-known brands, established relationship with advertisers and distributors, and ability to leverage our brands with major retailers and to monetize content across multiple platforms creates a competitive position that is difficult to replicate.

Our largest revenue stream comes from single copy newsstand sales. Our second largest revenue stream comes from multi-platform advertising. Our primary operating expenses consist of production, distribution, circulation and other cost of sales, as well as selling, general and administrative expenses. We incur most of our operating expenses during the production of our printed magazines, which includes costs for printing and paper. Paper is the principal raw material utilized in our publications. We have a long-term paper supply and purchasing agreement with the largest paper supply broker in the United States which manages all aspects of our raw material paper inventory. The price of paper is driven by market conditions and therefore difficult to predict. Changes in paper prices could significantly affect our business.

We are experiencing declines in our circulation revenue and print advertising as a result of market conditions in the magazine publishing industry. These declines are primarily caused by the disruption in our wholesaler distribution channel, the overall decline in the celebrity newsstand market and the decline in the consumer advertising market coupled with the shift in advertising dollars from print to digital. Our financial performance depends, in large part, on varying conditions in the markets we serve. Demand in these markets tends to fluctuate in response to overall economic conditions and current events. Since magazines are generally discretionary purchases for consumers, our circulation revenues are sensitive to economic downturns. Adverse changes in the markets we serve generally result in reductions in revenue as a result of lower consumer spending, which can lead to a reduction in advertising revenue.

Our fiscal year ended on March 31, 2015 and is referred to herein as fiscal 2015. References to our fiscal year (e.g. "fiscal 2015") refer to our fiscal year ended March 31st of the applicable year.


27


RECENT DEVELOPMENTS AND MANAGEMENT ACTION PLANS

Recent Developments

The Merger

In August 2014, we entered into an agreement and plan of merger (the "Merger Agreement") with AMI Parent Holdings, LLC, a Delaware limited liability company (the "Parent"), which is controlled by certain investors of AMI (collectively, the "Investors"), and AMI Merger Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent (the "Merger Sub"), whereby the Merger Sub was merged with and into AMI (the "Merger") with AMI surviving the Merger as a wholly-owned subsidiary of the Parent. As a result of the Merger, the Parent acquired 100% of the issued and outstanding shares of common stock of AMI. See "Liquidity and Capital Resources - Revolving Credit Facility and Senior Secured Notes" within this Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," for further information regarding the Merger and related transactions.

Debt Related Transactions

In connection with the Merger, AMI entered into a note purchase agreement (the "Note Purchase Agreement") with the Investors pursuant to which AMI issued to the Investors approximately $12.3 million in aggregate principal amount of senior secured notes, which bear interest at a rate of 10% per annum, payable in kind, and mature in June 2018 (the "Second Lien PIK Notes").

In September 2014, AMI entered into an exchange agreement with the Parent and the Investors pursuant to which the Investors exchanged approximately $121.1 million in aggregate principal amount of senior secured notes of AMI, consisting of $113.3 million in aggregate principal amount of Second Lien PIK Notes (including the $12.3 million issued in connection with the Note Purchase Agreement) and $7.8 million in aggregate principal amount of senior secured notes, which bear interest at a rate of 13.5% per annum and mature in June 2018 (the "Second Lien Notes"), plus accrued and unpaid interest of approximately $2.9 million, for equity interests in the Parent.

In January 2015, AMI exchanged approximately $32.0 million in aggregate principal amount of senior secured notes, which bear interest at a rate of 11.5% per annum and mature in June 2017 (the "First Lien Notes"), plus accrued and unpaid interest, held by the Investors, for approximately $39.0 million aggregate principal amount of new second lien senior secured notes, which bear interest at a rate of 7.0% per annum and mature in July 2020 (the "New Second Lien Notes"), pursuant to an exchange agreement.

In February 2015, we amended and restated the revolving credit facility to, among other things, extend the maturity date to December 2016, reduce the borrowing capacity from $40.0 million to $35.0 million and amend the first lien leverage ratio and certain other covenants and provisions.

During fiscal 2015, AMI repurchased approximately $56.1 million in aggregate principal amount of senior secured notes, consisting of $55.5 million in aggregate principal amount of First Lien Notes and $0.6 million in aggregate principal amount of Second Lien Notes, plus accrued and unpaid interest, in the open market, from the Investors.

At March 31, 2015, the Company's total principal amount of senior secured notes was approximately $309.6 million.

Subsequent to March 31, 2015, the Company repurchased approximately $2.0 million in aggregate principal amount of First Lien Notes, plus accrued and unpaid interest, in the open market, from the Investors. After giving effect to this repurchase approximately $273.2 million aggregate principal amount of First Lien Notes remain outstanding.

See "Liquidity and Capital Resources - Revolving Credit Facility and Senior Secured Notes" within this Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," for a further discussion regarding our debt agreements.

Dispositions

In November 2014, AMI sold its Country Weekly publication for approximately $3.0 million in cash and entered into a long-term publishing services agreement. The operating results of Country Weekly were insignificant to the Company's consolidated financial statements for the fiscal years ended March 31, 2015, 2014 and 2013 and did not meet the criteria for presentation of discontinued operations.


28


In January 2015, AMI and its wholly-owned subsidiary Weider Publications, LLC entered into an asset purchase agreement (the "Purchase Agreement") with Meredith Corporation ("Meredith"). The Purchase Agreement provided for the sale of AMI's Shape, Fit Pregnancy and Natural Health brands and magazines, which comprised its Women's Active Lifestyle segment. We received the initial cash consideration of $60.0 million in January 2015 when the transaction closed. AMI is further entitled to additional consideration (the "Additional Consideration"), in the form of a one-time payment, following the completion of Meredith's 2018 fiscal year on June 30, 2018. The Additional Consideration, up to $60.0 million, will be based upon 40% of the adjusted operating profit of the combination of AMI's Shape brand and Meredith's Fitness brand.

Pursuant to the Purchase Agreement, AMI continued to publish the Shape, Fit Pregnancy and Natural Health magazines with on-sale dates through March 31, 2015, after which Meredith assumed publishing responsibilities for such titles. Effective as of the closing, Meredith assumed control over the digital assets used with Shape, Fit Pregnancy and Natural Health. AMI will have no continuing involvement in the operations of these publications subsequent to March 31, 2015.

Digital Initiatives

Our fully integrated print and digital sales team is comprised of more than 60 sales executives, with a dozen digital brand champion sales staff across all the websites. We believe our structure is highly effective to respond to our advertisers' requests for integrated marketing solutions for combined print and digital, as well as digital-only programs. During fiscal 2015, our digital advertising revenue increased 26% over the comparable prior year period.

We have launched digital editions for all our brands on the following platforms: Next Issue Media, Apple, Google newsstand, Zinio, Amazon Kindle and Barnes & Noble's Nook.

Print Initiatives

The relaunch of Men's Fitness continues to attract new luxury goods advertisers. During fiscal 2015, total advertising revenues increased 14% for Men's Fitness as compared to the prior period. During fiscal 2015, there were over 100 new lifestyle advertisers, such as Grey Goose, HBO, Garnier, Mazda, SmartWater, New Balance, Dick's Sporting Goods and DSW, which had not previously invested in Men's Fitness.

The success of Men's Fitness allowed us to reposition Muscle & Fitness in the marketplace to fill the gap in fitness and training content that was left when Men's Fitness expanded its active lifestyle coverage. In addition to its current readers, the editorial for Muscle & Fitness also targets a new generation of fitness enthusiast by broadening the definition of what "fitness" really means. By expanding the editorial focus to include a wider range of fitness training, Muscle & Fitness attracts a wider audience at the newsstand. In addition, we have been able to capture advertising targeted at the fitness realm, but not limited to weight training, such as Nike and Reebok, as well as luxury good advertisers similar to the mix of advertisers in Men's Fitness.

Branded Products

In December 2014, we entered into a multi-year e-commerce partnership with GNC Holdings, Inc., across our health and fitness websites. The "Shop GNC" stores offer a selection of GNC products curated by the editors of our health and fitness publications at the brands in addition to access to the full GNC.com assortment of products. This is the first partnership of its kind for GNC's e-commerce business with a global media and content partner such as AMI. We also have a long-term agreement with GNC for publishing print editions of our Men's Fitness magazine (and Shape magazine pursuant to a licensing agreement with Meredith) in a combined special interest publication distributed in over 4,200 GNC stores, on a quarterly basis, in North America.

Last year, we became a strategic partner to Microsoft and produced Men's Fitness and Muscle & Fitness branded exercise and workout videos for Microsoft to incorporate into their Bing Health and Fitness application. This year, we entered into multiple contracts with Microsoft to create and provide additional exercise and workout videos, as well as providing our content for syndication, to be distributed through Microsoft offerings.

Other Developments

Declines in magazine sales at newsstands and other retail outlets have increased the financial instability of magazine wholesalers. Several of our smaller wholesalers ceased operation in early 2014 and Source Interlink Companies ("Source"), our second-largest wholesaler at such time, ceased operations in June 2014.


29


Prior to the execution of the Merger Agreement and the Note Purchase Agreement, AMI entered into various supplemental indentures to, among other things, permit the transactions contemplated by the Merger Agreement and the Note Purchase Agreement and eliminate AMI's obligation to repurchase approximately $12.7 million of senior secured notes, during fiscal 2015, pursuant to the terms of the indenture of certain senior secured notes and the exchange agreement related to such certain senior secured notes. See Liquidity and Capital Resources - Revolving Credit Facility and Senior Secured Notes within this Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," for further information regarding the Merger and related transactions.

Management Action Plans for Cost Savings

During fiscal 2014, we developed and implemented management action plans that resulted in $5.1 million of cost savings in fiscal 2014 (the "2014 Management Action Plans"). The expense improvements were primarily in print order efficiencies and editorial expense reductions. We realized the benefits from the 2014 Management Actions Plans in fiscal 2014 and certain of these cost savings may benefit fiscal 2015 and beyond.

During fiscal 2015, we developed and implemented management action plans that we expect will result in $6.1 million of cost savings in fiscal 2015 and $5.7 million of cost savings in fiscal 2016 (the "2015 and 2016 Management Action Plans"). These expense improvements were primarily from outsourcing technology and operating functions, digital content re-negotiations, and editorial and advertising sales expense reductions. We will realize the benefits from the 2015 and 2016 Management Action Plans in fiscal 2015, fiscal 2016 and beyond.

Reference to Management Action Plans refers to the 2014 Management Action Plans and the 2015 and 2016 Management Action Plans.

RESULTS OF OPERATIONS

The following table provides a summary of our operating results for the fiscal years ended March 31, 2015, 2014 and 2013 on a consolidated basis:
 
Fiscal years ended March 31,
 
% Change
(in thousands)
2015
 
2014
 
2013
 
'15 vs. '14
 
'14 vs. '13
Operating revenues:
 
 
 
 
 
 
 
 
 
Circulation
$
166,199

 
$
187,613

 
$
202,958

 
(11)%
 
(8)%
Advertising
67,258

 
72,953

 
65,212

 
(8)%
 
12%
Other
11,723

 
26,780

 
28,464

 
(56)%
 
(6)%
Total operating revenues
245,180

 
287,346

 
296,634

 
(15)%
 
(3)%
Operating expenses
250,961

 
253,561

 
297,607

 
(1)%
 
(15)%
Operating income (loss)
(5,781
)
 
33,785

 
(973
)
 
*
 
*
Other expense, net
(51,150
)
 
(60,098
)
 
(61,464
)
 
(15)%
 
(2)%
Loss from continuing operations before income tax provision (benefit)
(56,931
)
 
(26,313
)
 
(62,437
)
 
*
 
(58)%
Income tax provision (benefit)
(15,689
)
 
30,659

 
(6,436
)
 
*
 
*
Net loss from continuing operations
(41,242
)
 
(56,972
)
 
(56,001
)
 
(28)%
 
2%
Income (loss) from discontinued operations, net of taxes
15,334

 
3,701

 
456

 
*
 
*
Net loss
(25,908
)
 
(53,271
)
 
(55,545
)
 
(51)%
 
(4)%
Less: net (income) attributable to the noncontrolling interest
(1,219
)
 
(1,048
)
 
(694
)
 
16%
 
51%
Net loss attributable to American Media, Inc. and subsidiaries
$
(27,127
)
 
$
(54,319
)
 
$
(56,239
)
 
(50)%
 
(3)%
* Represents an increase or decrease in excess of 100%.


30


Operating Revenues

During fiscal 2015, total operating revenues decreased $42.2 million compared to the prior period primarily due to reduced circulation ($21.4 million), advertising ($5.7 million) and other revenues ($15.1 million).

Circulation revenue has declined due to the industry-wide disruption in our wholesaler channel due to the shutdown and bankruptcy of Source coupled with the decline in the celebrity magazine sector. In addition, the consumer advertising market declined 11% which impacted all consumer print magazines. The decline in other revenue was due to the divestiture of our distribution and merchandising business (DSI) in September 2013 ($5.2 million), coupled with an unfavorable timing of certain non-recurring revenue streams ($8.2 million), partially offset by higher revenue from the Mr. Olympia event ($1.3 million).

Total operating revenues decreased slightly during fiscal 2014 due to a decline in circulation revenue and the divestiture of DSI, which was mostly offset by higher advertising revenue. The increase in advertising revenue was primarily due to the success of the relaunch of Men's Fitness as an active lifestyle magazine.

On a pro forma basis, after the divestiture of DSI, total operating revenues would have increased $5.8 million or 2% during fiscal 2014. Other revenues would have increased $8.7 million or 64% primarily due to our digital initiatives and continued success of the Mr. Olympia event.

The following table summarizes our operating revenues, by type, as a percentage of total operating revenues:

 
Fiscal years ended March 31,
 
2015
 
2014
 
2013
Circulation
68%
 
65%
 
68%
Advertising
27%
 
25%
 
22%
Other
5%
 
10%
 
10%
Total
100%
 
100%
 
100%

Circulation Revenue

Total circulation of our print publications with a frequency of six or more times per year, were approximately 3.2 million copies per issue during fiscal 2015 and 3.5 million copies per issue during fiscal 2014 and 2013. As of March 31, 2015, our print publications comprised approximately 24% of total U.S. and Canadian newsstand circulation for weekly publications that are audited by the Alliance for Audited Media.

Our circulation revenue represented 68%, 65% and 68% of our operating revenues during fiscal 2015, 2014 and 2013, respectively and is comprised of the following components:

 
Fiscal years ended March 31,
 
2015
 
2014
 
2013
Single Copy
78%
 
79%
 
79%
Subscription
22%
 
21%
 
21%
Total
100%
 
100%
 
100%

As of March 31, 2015, our digital subscriptions represent 20% of our 2.1 million paid subscriptions, the highest percentage among our competitive set. Digital subscription revenue represented 1%, 3% and 4% of our circulation revenue during fiscal 2015, 2014 and 2013, respectively.

Circulation revenue declined $21.4 million and $15.3 million during fiscal 2015 and 2014, respectively, compared to the prior fiscal years due to the continued softness in the consumer magazine sector, coupled with the decline in the celebrity newsstand magazine market and the discontinuance and reduction of special one-time celebrity publications. Circulation revenue was further impacted during fiscal 2015 by the industry-wide disruption in our wholesaler channel due to the shutdown and bankruptcy of Source.


31


Advertising Revenue

Our advertising revenue represented 27%, 25% and 22% of our operating revenues during fiscal 2015, 2014 and 2013, respectively. Our advertising revenue is generated from the following components:
 
Fiscal years ended March 31,
 
2015
 
2014
 
2013
Print
85%
 
89%
 
95%
Digital
15%
 
11%
 
5%
Total
100%
 
100%
 
100%

Advertising revenue decreased $5.7 million during fiscal 2015 due to lower print advertising revenue ($7.7 million), partially offset by higher digital advertising ($2.0 million). Print advertising revenue was negatively impacted by the decline in the consumer magazine sector coupled with the reduced frequency of certain publications and the transformation of advertising from print to digital.

Advertising revenue increased $7.7 million during fiscal 2014 due to higher ad spending by beauty, packaged goods and luxury goods advertisers, primarily in Men's Fitness as a result of the market acceptance for the editorial repositioning of this publication. In addition, advertising revenue also increased in Star and OK! magazines due to creative marketing programs, content integration and efficiencies that our advertisers requested.

Other Revenue

Our other revenue represented 5% of our operating revenues during fiscal 2015 and 10% during fiscal 2014 and 2013.

During fiscal 2015, other revenue decreased $15.1 million due to the divestiture of our distribution and merchandising business (DSI) in September 2013 ($5.2 million) coupled with an unfavorable timing of certain non-recurring revenue streams ($8.2 million), partially offset by the Mr. Olympia event ($1.3 million).

During fiscal 2014, other revenue decreased $1.7 million primarily due to a decline in revenue from the DSI divestiture in September 2013.

On a pro forma basis, post divestiture of DSI, other revenues would have increased $8.7 million or 64% during fiscal 2014. This was due to higher revenues from Microsoft, the Mr. Olympia event and management fees and income from certain joint ventures.

Operating Expenses

The following table provides a summary of our operating expenses for the fiscal years ended March 31, 2015, 2014 and 2013 on a consolidated basis:

 
Fiscal years ended March 31,
 
% Change
(in thousands)
2015
 
2014
 
2013
 
'15 vs. '14
 
'14 vs. '13
Operating Expenses:
 
 
 
 
 
 
 
 
 
Editorial
$
26,804

 
$
30,870

 
$
33,620

 
(13)%
 
(8)%
Production
66,088

 
75,664

 
82,006

 
(13)%
 
(8)%
Distribution, circulation and other costs
39,010

 
46,023

 
53,956

 
(15)%
 
(15)%
Total cost of sales
131,902

 
152,557

 
169,582

 
(14)%
 
(10)%
Selling, general and administrative
86,636

 
78,331

 
67,854

 
11%
 
15%
Depreciation and amortization
13,965

 
13,435

 
9,573

 
4%
 
40%
Impairment of goodwill and intangible assets
18,458

 
9,238

 
50,598

 
100%
 
(82)%
Total operating expenses
$
250,961

 
$
253,561

 
$
297,607

 
(1)%
 
(15)%


32


We incur most of our operating expenses during the production of our printed magazines, which includes costs for printing and paper. Paper is the principal raw material utilized in our publications. We have a long-term paper supply and purchasing agreement with the largest paper supply broker in the United States which manages all aspects of our raw material paper inventory. The price of paper is driven by market conditions and therefore difficult to predict. Changes in paper prices could significantly affect our business. We believe adequate supplies of paper are available to fulfill our planned, as well as future, publishing requirements. We have long-term printing contracts with three major third-party printing companies.

Our production costs, including paper and printing costs, accounted for approximately 26%, 30% and 28% of our total operating expenses for the fiscal years ended March 31, 2015, 2014 and 2013, respectively.

Distribution, circulation and other costs consist primarily of postage and the cost of freight to our wholesalers and fulfillment companies for newsstand and subscription distribution. Our distribution, circulation and other cost of sales accounted for approximately 16% of our operating expenses for fiscal 2015 and 18% for each of fiscal 2014 and 2013.

Total Cost of Sales

Total cost of sales decreased during fiscal 2015 and 2014 compared to the prior year periods primarily due to planned expense reductions pursuant to the Management Action Plans in the following areas: $4.1 million in editorial expenses, $9.6 million in production expenses and $7.0 million in distribution and circulation during fiscal 2015 and $2.8 million in editorial expenses, $6.3 million in production and $7.9 million in distribution and circulation during fiscal 2014.

Selling, General and Administrative

Selling, general and administrative costs increased $8.3 million and $10.5 million during fiscal 2015 and 2014, respectively, as compared to the prior year periods.

Expenses increased during fiscal 2015 primarily due to the Merger and related transactions ($4.8 million), bad debt expense due to the wholesaler bankruptcy ($3.3 million), costs associated with restructuring ($1.5 million) and the timing of gains from insurance settlement recognized in the prior comparable period ($1.4 million), partially offset by the divestiture of our distribution and merchandising business (DSI) in September 2013 ($2.1 million).

The increase during fiscal 2014 was primarily due to the continued investment in our digital strategy ($1.1 million), bad debt expense related to wholesaler shutdowns ($4.7 million), higher advertising sales expenses primarily for salaries and commissions ($1.1 million), increase in outside services ($2.5 million) and restructuring costs, severance and closure of certain publications ($1.0 million). These increases have been partially offset by the divestiture of DSI ($0.2 million).

Depreciation and Amortization

Depreciation and amortization expenses, which are non-cash, increased $0.5 million and $3.9 million during fiscal 2015 and 2014, respectively, as compared to the prior year periods due to the increases in property and equipment and intangible assets.

Impairment of Goodwill and Intangible Assets

During an evaluation of goodwill and other identified intangible assets during fiscal 2015 and 2014, we determined that indicators were present in certain reporting units that would suggest the fair value of the reporting unit may have declined below the carrying value. This decline was primarily the result of the near-term advertising revenue shortfall coupled with the continued softness in the print publication industry overall, which resulted in lowered future cash flow projections.
As a result, an interim impairment test of goodwill and other indefinite-lived intangible assets was performed for certain reporting units. The evaluation resulted in the carrying value of goodwill and tradenames for certain reporting units to exceed the fair value. As a result, the Company recorded a pre-tax non-cash impairment charge totaling $18.5 million for goodwill and tradenames and $9.2 million for tradenames during fiscal 2015 and 2014, respectively.


33


Non-Operating Items

Interest Expense

Interest expense decreased $7.5 million and $1.4 million during fiscal 2015 and 2014, respectively, when compared to the prior year period due to reduction in the aggregate principal amount of senior secured notes outstanding.

Amortization of Deferred Debt Costs

Amortization of deferred debt costs increased $2.3 million and $0.2 million during fiscal 2015 and 2014, respectively, due to the additional amortization associated with the reduction of outstanding senior secured notes.

Income Taxes

We recorded an income tax benefit of $15.7 million during fiscal 2015 primarily due to the release of a portion of the valuation allowance. This was a direct result of the reclassification of certain tradenames from indefinite lived to finite lived effective October 1, 2014.

During fiscal 2014, we recorded an income tax provision of $30.7 million due to the $40.3 million valuation allowance which was recorded against the Company's net deferred tax assets.

Net Loss Attributable to American Media, Inc.

The $27.1 million of net loss attributable to American Media, Inc. for fiscal 2015 represents a $27.2 million improvement from the comparable prior year period. This improvement is primarily attributable to the $46.3 million decrease in provision for income taxes, the $11.6 million increase in income from discontinued operations, net of tax, and the $7.5 million decrease in interest expense, partially offset by the $39.6 million decrease in operating income.

The $54.3 million of net loss attributable to American Media, Inc. for fiscal 2014 represents a $1.9 million improvement from the comparable prior year period. This improvement is primarily due to the $34.8 million increase in operating income, the $3.2 million increase in income from discontinued operations, net of tax, and the $1.4 million decrease in interest expense, partially offset by the $37.1 million increase in income tax provision.

OPERATING SEGMENTS

Our operating segments consist of: Celebrity Brands, Men’s Active Lifestyle and Corporate and Other. After the divestiture of our Women's Active Lifestyle segment, we report under a new segment structure beginning in the fourth quarter of fiscal 2015. Given this change, we have restated prior period segment information to correspond to the current segment reporting structure. This reporting structure is organized according to the markets each segment serves and allows management to focus its efforts on providing the best content to a wide range of consumers.

Our operating segments consist of the following brands in print and digital, as of March 31, 2015:

Celebrity Brands Segment

National Enquirer, a weekly, hard news, investigating tabloid covering all celebrities, crime, human interest, health, fashion and beauty;

Star, a weekly, celebrity-focused, news-based, glossy magazine covering movie, television, reality series and music celebrities. Star's editorial content includes fashion, beauty, accessories and health sections;

OK!, a younger weekly, celebrity-friendly, news-based, glossy magazine covering the stars of movies, television, reality and music. OK!’s editorial content has fashion, beauty and accessories sections; OKMagazine.com differentiates itself through its use of online communities and social media to encourage a dialog between users, including their editorial point of view;

Globe, a weekly tabloid that focuses on older movie and television celebrities, the royal family, political scandals and investigative crime stories that are less mainstream and more salacious than the National Enquirer;


34


National Examiner, a weekly tabloid (currently only available in print format) consisting of celebrity and human interest stories, differentiating it from the other titles through its upbeat positioning as the source for gossip, contests, women’s service and good news for an older tabloid audience; and

Soap Opera Digest, a weekly magazine that provides behind-the-scenes scoop and breaking news to passionate soap opera fans every week; SoapOperaDigest.com is a companion site that mirrors the magazine's editorial point of view.

Men’s Active Lifestyle Segment

Men’s Fitness, an active lifestyle magazine for men 18-34 years old, which positions fitness as the new measure of success, as reflected in its editorial coverage of men’s fashion, grooming, automotive, finance, travel and other lifestyle categories; Men’s Fitness is also home to the latest in exercise techniques, sports training, nutrition and health; Men’sFitness.com provides everything for every man in terms of a healthy and fit lifestyle;

Muscle & Fitness, a fitness physique training magazine appealing to exercise enthusiasts and athletes of all ages, especially those focused on resistance training, body fat control, sports nutrition and supplements; MuscleandFitness.com provides workout videos and nutritional advice;

Flex, a magazine devoted to professional bodybuilding featuring nutrition, supplement, and performance science content for bodybuilding enthusiasts and coverage of all professional and amateur bodybuilding contests; Flexonline.com features online coverage of all the major bodybuilding competitions, as well as training videos with today’s top bodybuilders;

Muscle & Fitness Hers, a fitness physique training magazine designed for the active woman who wants more out of fitness, especially those who work extra hard to achieve a "super-fit" lifestyle and covers training, nutrition, health, beauty and fashion for today's women;

Mr. Olympia, a four-day event held annually in September in Las Vegas attracting over 50,000 fans of bodybuilding and fitness experts from around the world; includes a two-day health and fitness expo with 340 exhibitors including physical exercise challenges and merchandising opportunities that culminates with the world's most prestigious and largest event in bodybuilding and fitness, the Mr. Olympia contest; and

Weider UK, a wholly-owned subsidiary, publishes Muscle & Fitness and Flex in the United Kingdom, France and Germany and licenses the content in Holland and Australia. Each market edition is in a local language with local content and has its own website. Effective April 1, 2015, we relocated the business activities for these publications from the United Kingdom to our New York offices.

Corporate and Other Segment

This segment includes revenues from international licensing of certain health and fitness publications, photo syndication for all our media content platforms and strategic management services for publishers, including back office functions. The video content services we provide to Microsoft and the services provided by our former distribution services group (DSI) to publishing and non-publishing clients are also included in this segment.

Corporate overhead expenses are not allocated to other segments. They are as follows: corporate executive, production, circulation, information technology, accounting, legal, human resources, business development and administrative department costs.

Financial Information Regarding Our Operating Segments

We use operating income (loss) as a primary basis for the chief operating decision maker to evaluate the performance of each of our operating segments and present operating income (loss) before impairment of goodwill and intangible assets to provide a consistent and comparable measure of our performance between periods. Management uses operating income (loss) before impairment of goodwill and intangible assets when communicating financial results to the board of directors, stockholders, debt holders and investors as well as when determining performance goals for executive compensation. Management believes this non-GAAP measure, although not a substitute for GAAP, improves comparability. Management also believes our stockholders, debt holders and investors use this measure as a gauge to assess the performance of their investment in the Company.


35


We prepared the financial results of our operating segments on a basis that is consistent with the manner in which we internally disaggregate financial information to assist in making internal operating decisions. Our calculations of operating income (loss) herein may be different from the calculations used by other companies, therefore comparability may be limited. The accounting policies for the operating segments are the same as those described in the notes to the consolidated financial statements in this Annual Report, specifically Note 2, "Summary of Significant Accounting Policies."

The following table summarizes our total operating revenues by segment:

 
Fiscal years ended March 31,
 
% Change
(in thousands)
2015
 
2014
 
2013
 
'15 vs. '14
 
'14 vs. '13
Segment operating revenues:
 
 
 
 
 
 
 
 
 
Celebrity Brands
$
179,825

 
$
202,580

 
$
215,946

 
(11)%
 
(6)%
Men's Active Lifestyle
59,226

 
66,698

 
60,770

 
(11)%
 
10%
Corporate and Other
6,129

 
18,068

 
19,918

 
(66)%
 
(9)%
Total operating revenues
$
245,180

 
$
287,346

 
$
296,634

 
(15)%
 
(3)%

Total operating revenues decreased $42.2 million, or 15%, during fiscal 2015 due to the 18% decline in the overall celebrity newsstand market, primarily due to the industry-wide disruption in our wholesaler distribution channel, coupled with the 11% decline in the consumer advertising market. Other revenue was impacted during fiscal 2015 by the divestiture of our distribution and merchandising business (DSI) in September 2013 ($5.2 million), coupled with an unfavorable timing of certain non-recurring revenue streams ($8.2 million), partially offset higher revenue from the Mr. Olympia event ($1.3 million).

During fiscal 2014, total operating revenues decreased $9.3 million, or 3%, primarily due to the 11% decline in the celebrity newsstand market coupled with the divestiture of our distribution and merchandising business in September 2013, partially offset by higher advertising revenues in the Celebrity Brands and Men's Active Lifestyle segments.

The following table summarizes the percentage of segment operating revenues:

 
Fiscal years ended March 31,
 
2015
 
2014
 
2013
Segment operating revenues:
 
 
 
 
 
Celebrity Brands
73%
 
71%
 
73%
Men's Active Lifestyle
24%
 
23%
 
20%
Corporate and Other
3%
 
6%
 
7%
Total
100%
 
100%
 
100%

The following table summarizes our segment operating income (loss) before impairment for goodwill and intangible assets:

 
Fiscal years ended March 31,
 
% Change
(in thousands)
2015
 
2014
 
2013
 
'15 vs. '14
 
'14 vs. '13
Operating income (loss) before impairment:
 
 
 
 
 
Celebrity Brands
$
67,915

 
$
73,276

 
$
75,114

 
(7)%
 
(2)%
Men's Active Lifestyle
11,557

 
20,968

 
18,163

 
(45)%
 
15%
Corporate and Other
(66,795
)
 
(51,221
)
 
(43,652
)
 
30%
 
17%
Total operating income before impairment
12,677

 
43,023

 
49,625

 
(71)%
 
(13)%
Impairment of goodwill and intangible assets
18,458

 
9,238

 
50,598

 
100%
 
(82)%
Total operating income (loss)
$
(5,781
)
 
$
33,785

 
$
(973
)
 
*
 
*
* Represents an increase or decrease in excess of 100%.


36


Total operating income before impairment decreased $30.3 million and $6.6 million, respectively, during fiscal 2015 and 2014 primarily due to the lower operating revenues previously mentioned. These declines were partially offset by lower operating expenses related to the divestiture of our distribution and merchandising business and the planned expense savings pursuant to the Management Action Plans.

The pre-tax non-cash impairment charge for goodwill and intangible assets was $18.5 million and $9.2 million during fiscal 2015 and 2014, respectively, and impacted the Men's Active Lifestyle segment goodwill and tradenames. The pre-tax non-cash impairment charges were primarily the result of the continuing softness in the consumer magazine sector, which impacts consumer and advertising spending, resulting in lowered future cash flow projections. See the notes to the consolidated financial statements in this Annual Report, specifically Note 3, "Goodwill and Other Identified Intangible Assets."

Celebrity Brands Segment

The Celebrity Brands segment comprised 73%, 71% and 73% of our total operating revenues for fiscal 2015, 2014 and 2013, respectively.

Operating Revenues

Total operating revenues in the Celebrity Brands segment were $179.8 million for fiscal 2015, representing a decrease of $22.8 million, or 11%, over the comparable prior year period. Circulation revenue declined $19.7 million, or 11%, due to a reduction in the celebrity newsstand sales primarily due to the bankruptcy of Source, our second largest wholesaler, and the 18% decline in the celebrity newsstand market ($18.4 million) coupled with a planned discontinuance and reduction of special one-time celebrity publications ($1.3 million). Advertising revenue declined $2.1 million due to the softness in the consumer magazine sector.

Total operating revenues in the Celebrity Brands segment were $202.6 million for fiscal 2014 representing a decrease of $13.4 million, or 6%, over the comparable prior year period. Circulation revenue decreased $15.9 million which was caused by the 11% decline in the celebrity newsstand market ($11.7 million), coupled with the discontinuance and reduction of special interest publications ($4.2 million). This decline was partially offset by the $2. 8 million increase in advertising revenue primarily due to the performance of Star and OK!'s marketing programs, content integration and greater efficiencies in reaching our target audience.

Operating Income

The Celebrity Brands segment operating income before impairment decreased $5.4 million, or 7%, to $67.9 million during fiscal 2015.
This decline was caused by the revenue shortfalls mentions above. Our Management Action Plans implemented in fiscal 2014 and 2015 reduced costs by $17.4 million during fiscal 2015.

Operating income before impairment in the Celebrity Brands segment decreased during fiscal 2014 from prior year by $1.8 million, or 2%, to $73.3 million, primarily due to the reasons mentioned above. This was partially offset by our Management Action Plans implemented in fiscal 2013, which reduced expenses by $11.5 million during fiscal 2014.

Men’s Active Lifestyle Segment

The Men’s Active Lifestyle segment represented 24%, 23% and 20% of our consolidated operating revenues for fiscal 2015, 2014 and 2013, respectively.

Operating Revenues

Total operating revenues in the Men’s Active Lifestyle segment were $59.2 million during fiscal 2015, a decrease of $7.5 million, or 11%, over the comparable prior year period. The decline in circulation revenue ($2.6 million) and print advertising revenue ($7.1 million) was primarily due to the reduction in the publishing frequency of Muscle & Fitness and Flex, from twelve times per year to ten times per year (or two less issues) during fiscal 2015. Print advertising revenue has also been negatively impacted during fiscal 2015 by a major advertiser who shifted their entire advertising budget ($4.0 million) from print to digital and social advertising platform investments outside the Men's Active Lifestyle category. A portion of this advertising business has already returned to the Men's Active Lifestyle segment during fiscal 2016. These declines were partially offset by the increase in digital advertising revenue ($1.3 million), which is directly attributable to the relaunch and repositioning of Men's Fitness, and the increased revenues from the Mr. Olympia event ($1.3 million, or 26%).


37


Total operating revenues in the Men’s Active Lifestyle segment for fiscal 2014 were $66.7 million, a $5.9 million, or 10%, increase from prior year. Advertising revenue increased $5.0 million, which is directly attributable to the relaunch and repositioning of Men's Fitness magazine and companion website. In addition, the revenue from the Mr. Olympia event increased $1.4 million, or 37% from prior year. This was partially offset by a $0.9 million decline in circulation revenue.

Operating Income

Operating income before impairment in the Men’s Active Lifestyle segment declined during fiscal 2015 from prior year by $9.4 million, or 45%, to $11.6 million. This decline is due to the reasons mentioned above coupled with an increase in amortization expense related to the classification of certain tradenames from indefinite lived intangibles to finite lives of 15 years, effective October 1, 2014 ($1.5 million).

Operating income before impairment in the Men’s Active Lifestyle segment increased during fiscal 2014 from prior year by $2.8 million, or 15%, to $21.0 million. This increase was attributable to higher advertising volume and the increase in revenue from the Mr. Olympia event, as discussed above, partially offset by the increase in costs associated with the Mr. Olympia event.

Corporate and Other Segment

The Corporate and Other segment was 3%, 6% and 7% of our consolidated operating revenues for fiscal 2015, 2014 and 2013, respectively.

Operating Revenues

Total operating revenues in the Corporate and Other segment were $6.1 million during fiscal 2015, a decrease of $11.9 million, or 66%, from prior year. This decline was attributable to the divestiture of our distribution and merchandising business in September 2013 ($5.2 million), the timing of the custom video projects for Microsoft ($4.7 million) and the cessation of certain publishing services ($2.3 million).

Total operating revenues in the Corporate and Other segment for fiscal 2014 were $18.1 million, a decrease of $1.9 million, or 9%, from prior year. This decrease was due to the $9.8 million decline in revenue due to the divestiture of our distribution and merchandising business in September 2013, partially offset by $4.8 million from the video projects with Microsoft and $1.7 million in management fees and income from certain joint ventures.

Operating Loss

Total operating loss before impairment increased by $15.6 million, or 30%, to $66.8 million during fiscal 2015, compared to the prior year period. This increase was attributable to the $11.9 million decline in operating revenue coupled with a $3.6 million increase in operating expenses. Operating expenses increased primarily due to the bad debt expense related to the wholesaler shutdowns ($3.3 million) and the costs incurred for the Merger and other related transactions ($3.4 million), coupled with the timing of the gains on insurance settlement recognized in the prior comparable period ($1.4 million). These expense increases were partially offset by the $5.2 million decrease in operating expenses related to the divestiture of our distribution and merchandising business.

Total operating loss increased by $7.6 million, or 17%, to $51.2 million during fiscal 2014. This increase was attributable to the $1.9 million decline in operating revenue coupled with an $11.5 million increase in operating expenses, primarily for the continued investment in our digital strategy, bad debt expense related to wholesaler shutdowns, costs related to launches and closures of publications and other non-recurring expenses coupled with the $3.5 million increase in non-cash depreciation and amortization expense. These increases are partially offset by the $9.3 million decrease in operating expenses related to the DSI divestiture.

LIQUIDITY AND CAPITAL RESOURCES

Management’s Assessment of Liquidity

Our operations have historically generated positive net cash flow from operating activities. Our primary sources of liquidity are cash on hand, cash generated from operations, amounts available under our revolving credit facility (the "Amended and Restated Revolving Credit Facility") and cash interest savings from our recent debt reduction initiatives.


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Our principal uses of cash that affect our liquidity include operational expenditures and debt service costs, including interest payments on and repurchases of our senior secured notes. In addition to the dispositions discussed elsewhere, we expect to continue to evaluate possible acquisitions and dispositions of certain businesses. These transactions, if consummated, could be material and may involve cash or the issuance of additional senior secured notes.

As of March 31, 2015, the Company had $3.5 million of cash, $15.9 million available pursuant to the Amended and Restated Revolving Credit Facility, which matures in December 2016, and a working capital deficit of $41.5 million, of which approximately $26.7 million relates to deferred revenues. In addition to outstanding borrowings under the Amended and Restated Revolving Credit Facility, there was $309.6 million principal amount of outstanding senior secured debt as of March 31, 2015. Over the next year, the cash interest payments due under these debt agreements are approximately $34.9 million and there are no scheduled principal payments due.

We expect that our current cash balances, cash generated from operating activities, availability under our Amended and Restated Revolving Credit Facility and the cash interest savings from the recent debt reduction initiatives, should be sufficient to meet working capital, capital expenditures, debt service, and other cash needs for the next year.

Our level of indebtedness could have important consequences for the business and operations. See Item 1A, "Risk Factors" included in this Annual Report, specifically, "Our substantial indebtedness and our ability to incur additional indebtedness could adversely affect our business, financial condition and result of operations."

Discontinued Wholesaler

As previously discussed, our former second-largest wholesaler ceased operations in May 2014 and filed for bankruptcy in June 2014. We are currently working with the two remaining major wholesalers and retailers to transition the newsstand circulation to them. This had an adverse impact on single copy newsstand sales and liquidity in fiscal 2015 and continues to have an adverse impact into the first quarter of fiscal 2016. There can be no assurances that, after completing the transition of newsstand circulation, our revenue will not be temporarily or permanently reduced if consumers at the impacted retailers do not resume purchasing our publications at the same rate or quantities previously purchased or if the transition to certain retailers is not successful. See Item 1A, "Risk Factors" included in this Annual Report, specifically, "Our circulation revenue consists of single copy sales distributed to retailers primarily by two wholesalers and the loss of either of these wholesalers could materially adversely affect our business and results of operations."

Cash Flow Summary

The following information has been derived from the accompanying consolidated financial statements for fiscal 2015, 2014 and 2013. Cash and cash equivalents increased by $0.4 million and $0.7 million during fiscal 2015 and 2014, respectively. The change in cash and cash equivalents is as follows:
 
 
Fiscal years ended March 31,
 
Net Change
in thousands
 
2015
 
2014
 
2013
 
2015 vs. 2014
 
2014 vs. 2013
Net loss
 
$
(25,908
)
 
$
(53,271
)
 
$
(55,545
)
 
$
27,363

 
$
2,274

Non-cash items
 
31,967

 
72,447

 
71,212

 
(40,480
)
 
1,235

Net change in operating assets and liabilities
 
6,646

 
(9,382
)
 
(572
)
 
16,028

 
(8,810
)
Operating activities
 
12,705

 
9,794

 
15,095

 
2,911

 
(5,301
)
Investing activities
 
55,665

 
(18,820
)
 
(12,680
)
 
74,485

 
(6,140
)
Financing activities
 
(67,174
)
 
9,509

 
(5,016
)
 
(76,683
)
 
14,525

Effects of exchange rates
 
(774
)
 
189

 
(267
)
 
(963
)
 
456

Net increase (decrease) in cash and cash equivalents
 
$
422

 
$
672

 
$
(2,868
)
 
$
(250
)
 
$
3,540


Operating Activities

Cash provided by operating activities is primarily driven by our non-cash items, changes in working capital and the impact of our results of operations. Non-cash items consist primarily of impairment of goodwill and intangible assets, provision (benefit) for income taxes, depreciation and amortization, amortization of deferred debt costs and deferred rack costs, provision for doubtful accounts.


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Net cash provided by operating activities increased $2.9 million during fiscal 2015 as compared to fiscal 2014, primarily due to the $27.4 million increase in our results of operations coupled with the $16.0 million net change in operating assets and liabilities, partially offset by the $40.5 million net increase in non-cash items.

The net change in operating assets and liabilities is primarily due to the $7.6 million net change in inventories resulting from our agreement to outsource paper purchases, the $6.7 million net change in prepaid expenses, the $3.6 million net change in accounts payable and accrued expenses, the $3.4 million net change in trade receivables, partially offset by the net change in deferred revenue of $2.7 million and the net change in accrued interest of $2.2 million.

Non-cash items decreased primarily due to the decrease in provision for income taxes of $64.7 million, partially offset by the impairment of goodwill and intangible assets of $9.2 million, the increase in provision for doubtful account of $3.4 million, the loss on sale of assets of $2.5 million, the increase in non-cash payment-in-kind interest accretion of $2.9 million for the Second Lien PIK Notes and the net decrease in amortization of deferred debt and deferred rack costs of $1.6 million.

Net cash provided by operating activities decreased $5.3 million during fiscal 2014 as compared to fiscal 2013, primarily due to the $8.8 million net change in operating assets and liabilities, partially offset by the $1.2 million net increase in non-cash items coupled with the $2.3 million increase in our results of operations.

The net change in operating assets and liabilities is primarily due to the $12.5 million net change in trade receivables, the $4.7 million net change in prepaid expenses, the $2.2 million net change in other long-term assets and the $1.7 million net change in inventories, partially offset by the net change in accounts payable and accrued expenses of $6.1 million, the net change in other non-current liabilities of $3.6 million and the net change in deferred revenues of $3.3 million.

Non-cash items increased primarily due to the increase in provision for income taxes of $39.3 million, increase in depreciation and amortization of $4.3 million, the increase in provision for doubtful accounts of $2.5 million and the increase in non-cash payment-in-kind interest accretion of $1.9 million for the Second Lien PIK Notes, partially offset by the decrease in the impairment charge for goodwill and intangible assets of $45.3 million and the net decrease in amortization of deferred rack and deferred debt costs of $1.5 million.
  
Investing activities

Net cash provided by investing activities was $55.7 million for fiscal 2015, an increase of $74.5 million, compared to $18.8 million of net cash used in investing activities for fiscal 2014. The increase is primarily attributable to the $63.0 million in proceeds from the sale of assets and the $2.6 million in proceeds from affiliates coupled with the $2.5 million decrease in investment in affiliates plus the $6.2 million decrease in purchases of property and equipment and intangibles assets.

Net cash used in investing activities was $18.8 million for fiscal 2014, an increase of $6.1 million compared to $12.7 million of net cash used in investing activities for fiscal 2013. The increase is primarily attributable to the $4.0 million increase in purchases of property and equipment and intangible assets, coupled with the $2.2 million investment in affiliates. The increase in purchases of intangible assets was due to the investment in our digital strategy.

Financing activities

Net cash used in financing activities for fiscal 2015 was $67.2 million, an increase of $76.7 million, compared to $9.5 million of net cash provided by financing activities for fiscal 2014. The increase is primarily attributable to the $55.8 million increase in repurchases of certain senior secured notes, the $31.3 million decrease in net borrowings under the Amended and Restated Revolving Credit Facility, partially offset by the $12.5 million in proceeds from the issuance of certain senior secured notes and the $4.0 million decrease in payments for the redemption of Odyssey preferred stock.

Net cash used in financing activities for fiscal 2014 was $9.5 million, an increase of $14.5 million, compared to $5.0 million for fiscal 2013. The increase is primarily attributable to the $12.0 million increase in net proceeds from the Amended and Restated Revolving Credit Facility and the $5.1 million decrease in payments to noncontrolling interest holders of Olympia and Odyssey, partially offset by the $2.5 million increase in repurchases of certain senior secured notes.


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Revolving Credit Facility and Senior Secured Notes

Revolving Credit Facility

In December 2010, we entered into a revolving credit facility maturing in December 2015 (the "2010 Revolving Credit Facility"). The 2010 Revolving Credit Facility provided for borrowing up to $40.0 million less outstanding letters of credit. As further discussed below, in February 2015, we amended and restated the 2010 Revolving Credit Facility (the "Amended and Restated Revolving Credit Facility") to, among other things, extend the maturity date to December 2016, reduce the borrowing capacity from $40.0 million to $35.0 million and amend the first lien leverage ratio and certain other covenants and provisions.

The Company has the option to pay interest based on (i) a floating base rate option equal to the greatest of (x) the prime rate in effect on such day; (y) the federal funds effective rate in effect on such day plus ½ of 1%; and (z) one month LIBOR (but no less than 2%) plus 1%, or (ii) LIBOR, in each case, plus a margin. The interest rate under the 2010 Revolving Credit Facility has ranged from 8.00% to 8.25% during the fiscal year ended March 31, 2015 and 2014. In addition, the Company is required to pay a commitment fee ranging from 0.50% to 0.75% on the unused portion of the revolving commitment. Commitment fees paid during fiscal 2015, 2014 and 2013 were insignificant.

During fiscal 2015, the Company borrowed $62.8 million and repaid $77.1 million under the Amended and Restated Revolving Credit Facility. At March 31, 2015, the Company has available borrowing capacity of $15.9 million after considering the $14.7 million outstanding balance and the $4.4 million outstanding letter of credit. The outstanding balance at March 31, 2015 of $14.7 million is included in non-current liabilities, as the maturity date of the Amended and Restated Revolving Credit Facility is December 2016.

The indebtedness under the 2010 Revolving Credit Facility and the Amended and Restated Revolving Credit Facility is guaranteed by certain of the domestic subsidiaries of the Company and is secured by liens on substantially all the assets of the Company and certain of its domestic subsidiaries. In addition, the Company’s obligations are secured by a pledge of all the issued and outstanding shares of, or other equity interests in, certain of the Company's existing or subsequently acquired or organized domestic subsidiaries and a percentage of the capital stock of, or other equity interests in, certain of its existing or subsequently acquired or organized foreign subsidiaries.

Revolving Credit Facility Amendments

In August 2014, AMI, JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”), and the lenders from time to time party to the 2010 Revolving Credit Facility, as amended, restated, modified or supplemented from time to time, entered into Amendment No. 3 (the “Third Credit Agreement Amendment”) to the 2010 Revolving Credit Facility with the lenders (the “Consenting Lenders”) constituting the Required Lenders (as defined in the 2010 Revolving Credit Facility).

Pursuant to the Third Credit Agreement Amendment and subject to the Credit Parties’ (as defined in the 2010 Revolving Credit Facility) compliance with the requirements set forth therein, the Consenting Lenders agreed to (i) waive until the earlier of (x) August 15, 2014 and (y) immediately prior to the consummation of the Merger, any potential Default or Event of Default (each, as defined in the 2010 Revolving Credit Facility) arising from the failure to furnish to the Administrative Agent (A) the financial statements, reports and other documents as required under Section 5.01(a) of the 2010 Revolving Credit Facility with respect to the fiscal year of the Company ended March 31, 2014 and (B) the related deliverables required under Sections 5.01(c) and 5.03(b) of the 2010 Revolving Credit Facility, (ii) permit the transactions contemplated by the Merger Agreement and the Note Purchase Agreement, including amending the definition of “Change of Control” and permitting the issuance of the Additional Notes pursuant to the Second Lien PIK Notes Indenture (each as defined), (iii) consent to the sale of certain assets of the Loan Parties (as defined in the 2010 Revolving Credit Facility), (iv) restrict any payment or distribution in respect of the First Lien Notes (as defined) on or prior to June 15, 2015, subject to certain exceptions, including the payment of regularly scheduled interest and any mandatory prepayments and mandatory offers to purchase under the First Lien Notes, and (v) amend the maximum first lien leverage ratio covenant to be equal to or less than 5.25 to 1.00 from April 1, 2014 through and including the quarter ending June 30, 2015. From July 1, 2015 through December 31, 2015, the maturity date of the 2010 Revolving Credit Facility, the first lien leverage ratio must be equal to or less than 4.50 to 1.00, the ratio in effect prior to the amendment.

In August 2014, AMI received a waiver under the 2010 Revolving Credit Facility to provide additional time to file the Quarterly Report for the quarterly period ended June 30, 2014, with the SEC and to make it available to the 2010 Revolving Credit Facility lenders.


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In January 2015, AMI, the Administrative Agent and the lenders from time to time party to the 2010 Revolving Credit Facility, as amended, restated, modified or supplemented from time to time, entered into Amendment No. 4 (the “Fourth Credit Agreement Amendment”) to the 2010 Revolving Credit Facility with the lenders constituting the Required Lenders (as defined in the Credit Agreement) to, among other things, modify the definition of "Permitted Refinancing Indebtedness” to, among other things, permit the transactions contemplated by the exchange of certain senior secured notes as further described below.

In January 2015, AMI, the Administrative Agent and the lenders from time to time party to the 2010 Revolving Credit Facility, as amended, restated, modified or supplemented from time to time, entered into Amendment No. 5 (the “Fifth Credit Agreement Amendment”) to the 2010 Revolving Credit Facility with the lenders constituting the Required Lenders (as defined in the Credit Agreement) to, among other things, permit the transactions contemplated by the sale of our Shape, Fit Pregnancy and Natural Health publications, which comprised our Women's Active Lifestyle segment, as previously discussed.

In February 2015, AMI received a waiver under the 2010 Revolving Credit Facility to provide additional time to file the Quarterly Report for the quarterly period ended December 31, 2014, with the SEC and to make it available to the 2010 Revolving Credit Facility lenders.

In February 2015, AMI, the Administrative Agent and the lenders from time to time party to the 2010 Revolving Credit Facility, as amended, restated, modified or supplemented from time to time, entered into the Amended and Restated Revolving Credit Facility with the lenders constituting the Required Lenders (as defined in the Credit Agreement) to, among other things, extend the maturity date to December 2016, reduce the borrowing capacity from $40.0 million to $35.0 million, amend the maximum first lien leverage ratio covenant to be equal to or less than 4.75 to 1.00 for the quarter ending March 31, 2015 and 4.50 to 1.00 from April 1, 2015 through December 2016, the maturity date of the Amended and Restated Revolving Credit Facility. In addition to the first lien leverage ratio, the Amended and Restated Revolving Credit Facility includes a consolidated leverage ratio and an interest coverage ratio. The consolidated leverage ratio covenant must be equal to or less than 5.50 to 1.00 for the quarter ended March 31, 2015, 4.75 to 1.00 from April 1, 2015 through September 30, 2015 and 5.50 to 1.00 from October 1, 2015 through December 2016. The interest coverage ratio must be equal to or greater than 1.10 to 1.00 for the quarter ended March 31, 2015 and 1.50 to 1.00 from April 1, 2015 through December 2016.

Covenants

Our 2010 Revolving Credit Facility and the Amended and Restated Revolving Credit Facility include certain representations and warranties, conditions precedent, affirmative covenants, negative covenants and events of default customary for agreements of this type. The negative covenants in the 2010 Revolving Credit Facility include financial maintenance covenants comprised of a first lien leverage ratio calculated using EBITDA as defined in the 2010 Revolving Credit Facility. The negative covenants in the Amended and Restated Revolving Credit Facility includes financial maintenance covenants comprised of a first lien leverage ratio, a consolidated leverage ratio and an interest coverage ratio. The 2010 Revolving Credit Facility and the Amended and Restated Revolving Credit Facility also contain certain covenants that, subject to certain exceptions, restrict paying dividends, incurring additional indebtedness, creating liens, making acquisitions or other investments, entering into certain mergers or consolidations, prepaying junior debt and selling or disposing of assets. With respect to the dividend restrictions, the 2010 Revolving Credit Facility and the Amended and Restated Revolving Credit Facility include a cap on the total amount of cash available for distribution to our common stockholders.

Senior Secured Notes

First Lien Notes

In December 2010, we issued $385.0 million aggregate principal amounts of senior secured notes, which bear interest at a rate of 11.5% per annum, payable semi-annually, and mature in December 2017 (the "First Lien Notes"). During fiscal 2012, we redeemed $20.0 million in aggregate principal amount of First Lien Notes at a redemption price equal to 103.0% of the aggregate principal amount thereof, plus accrued and unpaid interest. During fiscal 2014, we repurchased approximately $2.3 million in aggregate principal amount of First Lien Notes at a price equal to 108.625% of the aggregate principal amount thereof, plus accrued and unpaid interest, in the open market, from the Investors.

During fiscal 2015, we repurchased $55.5 million in aggregate principal amount of First Lien Notes at a price equal to 103.9% of the aggregate principal amount thereof, plus accrued and unpaid interest, in the open market, from the Investors. In January 2015, we exchanged approximately $32.0 million in aggregate principal amount of First Lien Notes, plus accrued and unpaid interest, held by the Investors, for approximately $39.0 million aggregate principal amount of new second lien senior secured notes, which bear interest at a rate of 7.0% per annum and mature in July 2020 (the "New Second Lien Notes"), pursuant to an exchange agreement (the "New Second Lien Notes Exchange Agreement"), as further described below.


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At March 31, 2015, the First Lien Notes represented an aggregate of $275.2 million of our indebtedness.

Subsequent to March 31, 2015, we repurchased approximately $2.0 million in aggregate principal amount of First Lien Notes, at a price equal to 105.9% of the aggregate principal amount thereof, plus accrued and unpaid interest, in the open market, from the Investors. After giving effect to this repurchase approximately $273.2 million aggregate principal amount of First Lien Notes remain outstanding.

In connection with the Merger, we received a permanent waiver of our obligation to redeem approximately $12.7 million of First Lien Notes, during fiscal 2015, pursuant to the terms of the Second Lien PIK Note Indenture and the Exchange Agreement (each as defined below). In connection with the Debt for Equity Exchange Agreement, our obligations under the Second Lien PIK Note Indenture were satisfied in full and we are no longer obligated under the Second Lien PIK Indenture and the Exchange Agreement to make redemptions of First Lien Notes. See description of Second Lien PIK Notes below.

The indenture governing the First Lien Notes contains certain affirmative covenants, negative covenants and events of default customary for agreements of this type. For example, the indenture governing the First Lien Notes contains covenants that limit our ability and that of our restricted subsidiaries, subject to important exceptions and qualifications, to: borrow money; guarantee other indebtedness; use assets as security in other transactions; pay dividends on stock, redeem stock or redeem subordinated debt; make investments; enter into agreements that restrict the payment of dividends by subsidiaries; sell assets; enter into affiliate transactions; sell capital stock of subsidiaries; enter into new lines of business; and merge or consolidate. In addition, the indenture governing the First Lien Notes imposes certain requirements as to future subsidiary guarantors.

The First Lien Notes are guaranteed on a first lien senior secured basis by the same subsidiaries of the Company that guarantee our 2010 Revolving Credit Facility. The First Lien Notes and the guarantees thereof are secured by a first-priority lien on substantially all our assets (subject to certain permitted liens and exceptions), pari passu with the liens granted under our 2010 Revolving Credit Facility, provided that in the event of a foreclosure on the collateral or of insolvency proceedings, obligations under our 2010 Revolving Credit Facility will be repaid in full with proceeds from the collateral prior to the obligations under the First Lien Notes.

See "Supplemental Indentures" below for a discussion of the amendments to the indenture governing the First Lien Notes to, among other things, permit the transaction contemplated by the Merger Agreement and the Note Purchase Agreement, including amending the definition of "Change of Control."

Second Lien Notes

In December 2010, we issued $104.9 million aggregate principal amounts of senior secured notes, which bear interest at a rate of 13.5% per annum, payable semi-annually, and mature in June 2018 (the "Second Lien Notes"). In October 2013, we exchanged approximately $94.3 million aggregate principal amount of Second Lien Notes for an equal aggregate principal amount of new second lien senior secured notes, which bear interest at a rate of 10.0% per annum, are payable in kind, and mature in June 2018 (the “Second Lien PIK Notes”). See description of Second Lien PIK Notes below.

In September 2014, approximately $7.8 million aggregate principal amount of Second Lien Notes were converted into equity pursuant to the Debt for Equity Exchange Agreement (as discussed below). During fiscal 2015, we repurchased approximately $0.6 million in aggregate principal amount of Second Lien Notes at a price equal to 108.0% of the aggregate principal amount thereof, plus accrued and unpaid interest, in the open market, from the Investors. At March 31, 2015, the Company's total principal amount of Second Lien Notes was approximately $2.2 million.

The indenture governing the Second Lien Notes contains certain affirmative covenants, negative covenants and events of default customary for agreements of this type. For example, the indenture governing the Second Lien Notes contains covenants that limit our ability and that of our restricted subsidiaries, subject to important exceptions and qualifications, to: borrow money; guarantee other indebtedness; use assets as security in other transactions; pay dividends on stock, redeem stock or redeem subordinated debt; make investments; enter into agreements that restrict the payment of dividends by subsidiaries; sell assets; enter into affiliate transactions; sell capital stock of subsidiaries; enter into new lines of business; and merge or consolidate. In addition, the indenture governing the Second Lien Notes imposes certain requirements as to future subsidiary guarantors.

The Second Lien Notes are guaranteed on a second lien senior secured basis by the same subsidiaries of the Company that guarantee our Amended and Restated Revolving Credit Facility and the First Lien Notes. The Second Lien Notes and the guarantees thereof are secured by a second-priority lien on substantially all our assets (subject to certain permitted liens and exceptions).


43


See "Supplemental Indentures" below for a discussion of the amendments to the indenture governing the Second Lien Notes to, among other things, permit the transactions contemplated by the Merger Agreement and the Note Purchase Agreement, including amending the definition of "Change of Control."

Second Lien PIK Notes

In October 2013, we issued approximately $94.3 million aggregate principal amount of Second Lien PIK Notes in exchange for an equal aggregate principal amount of Second Lien Notes, pursuant to an exchange agreement (the "Second Lien PIK Notes Exchange Agreement"). The Second Lien PIK Notes were issued under an indenture, by and among American Media, Inc., certain of its subsidiaries listed as guarantors thereto and Wilmington Trust, National Association, as trustee (the "Second Lien PIK Notes Indenture").

The Second Lien PIK Notes are payable in kind at a rate of 10% per annum until the earliest of: (a) December 15, 2016, (b) the closing of a refinancing of the First Lien Notes or (c) upon the occurrence of certain specified events of default relating to the application of the cash interest savings and the right of first offer (any such date being the "Cash Interest Rate Conversion Date"), at which point the interest payable on the then outstanding aggregate principal amount of Second Lien PIK Notes will be payable at a cash interest rate of 13.5% per annum until the June 2018 maturity date. Subject to certain exceptions, under the Second Lien PIK Notes Indenture, cash interest savings resulting from the exchange of the Second Lien Notes of approximately $6.4 million per each semi-annual interest period must be used by the Company to repurchase First Lien Notes until the Cash Interest Rate Conversion Date. The participating holders (as defined in the Exchange Agreement) have a right of first offer to sell any of their First Lien Notes to the Company before the Company makes repurchases of First Lien Notes from any other holders of the First Lien Notes, including those purchases pursuant to open market repurchases.

In August 2014, AMI and the Guarantors entered into an amendment to the Second Lien PIK Notes Exchange Agreement (the “Second Lien PIK Notes Exchange Agreement Amendment”) which provided that AMI was not required to apply the cash interest savings to repurchase outstanding First Lien Notes for the semi-annual interest periods ending on June 15, 2014 and December 15, 2014.

In connection with the Merger Agreement, AMI and certain of its subsidiaries (the "Guarantors") entered into the Note Purchase Agreement with the Investors and AMI issued additional Second Lien PIK Notes (the "Additional Notes") to the Investors at par plus accrued interest for a total purchase price equal to $12.5 million. The Additional Notes were issued under the Second Lien PIK Notes Indenture, among AMI, the Guarantors and Wilmington Trust, National Association, as trustee and collateral agent (the "Trustee"), and were assigned the same CUSIP number as the outstanding Second Lien PIK Notes. The Additional Notes were issued through a private offering exempt from the registration requirements of the Securities Act of 1933, as amended.

The interest payment-in-kind due on December15, 2013 and the June 15, 2014 totaled $1.9 million and $4.8 million, respectively, and were recorded as increases to the Second Lien PIK Notes. In September 2014, pursuant to the Debt for Equity Exchange Agreement (as discussed below), all $113.3 million of outstanding aggregate principal amount of Second Lien PIK Notes were converted into equity.

Debt for Equity Conversion

In September 2014, AMI entered into the Debt for Equity Exchange Agreement with the Parent and the Investors, pursuant to which the Investors converted approximately $7.8 million, or 74%, of aggregate principal amount of Second Lien Notes and approximately $113.3 million, or 100%, of aggregate principal amount of Second Lien PIK Notes into equity (the “Conversion”). The Conversion also included the accrued and unpaid interest since the last semi-annual interest payment on June 15, 2014, totaling approximately $2.9 million. After giving effect to the Conversion, approximately $2.9 million aggregate principal amount of Second Lien Notes remained outstanding and there were no Second Lien PIK Notes outstanding.

In September 2014, upon the cancellation of all outstanding Second Lien PIK Notes, the collateral agreement securing the Second Lien PIK Notes was terminated and the obligations of AMI under the Second Lien PIK Notes Indenture were satisfied in full. As a result, AMI is no longer obligated under the Exchange Agreement or the Exchange Agreement Amendment governing the application of the cash interest savings from the Second Lien PIK Notes to be used to redeem First Lien Notes.


44


New Second Lien Notes

In January 2015, we issued approximately $39.0 million aggregate principal amount of New Second Lien Notes to the Investors, which bear interest at a rate of 7.0% per annum and mature in July 2020. Interest on the New Second Lien Notes is payable semi-annually on July 15th and January 15th of each year and is computed on the basis of a 360-day year comprised of twelve 30 day months. As described above, the New Second Lien Notes were issued in exchange for $32.0 million aggregate principal amount of First Lien Notes pursuant to the New Second Lien Notes Exchange Agreement. The New Second Lien Notes were issued under a new indenture (the “New Second Lien Notes Indenture”), by and among American Media, Inc., the Guarantors and the Trustee. The New Second Lien Notes were issued through a private offering exempt from the registration requirements of the Securities Act of 1933, as amended.

The indenture governing the New Second Lien Notes contains certain affirmative covenants, negative covenants and events of default customary for agreements of this type. For example, the indenture governing the New Second Lien Notes contains covenants that limit our ability and that of our restricted subsidiaries, subject to important exceptions and qualifications, to: borrow money; guarantee other indebtedness; use assets as security in other transactions; pay dividends on stock, redeem stock or redeem subordinated debt; make investments; enter into agreements that restrict the payment of dividends by subsidiaries; sell assets; enter into affiliate transactions; sell capital stock of subsidiaries; enter into new lines of business; and merge or consolidate. In addition, the indenture governing the New Second Lien Notes imposes certain requirements as to future subsidiary guarantors.

The New Second Lien Notes are guaranteed on a second lien senior secured basis by the same subsidiaries of the Company that guarantee our 2010 Revolving Credit Facility, the First Lien Notes and the Second Lien Notes. The New Second Lien Notes and the guarantees thereof are secured by a second-priority lien on substantially all our assets (subject to certain permitted liens and exceptions).

Supplemental Indentures

In August 2014, AMI received consents from the holders of (a) $218.2 million principal amount of the outstanding First Lien Notes to amend the indenture dated as of December 1, 2010 (as such agreement may be amended, restated or supplemented, the “First Lien Notes Indenture”), among AMI, the Guarantors and the Trustee, (b) $7.8 million principal amount of the outstanding Second Lien Notes to amend the indenture dated as of December 22, 2010 (as such agreement may be amended, restated or supplemented, the “Second Lien Notes Indenture” and, together with the First Lien Notes Indenture and the Second Lien PIK Notes Indenture, the “Indentures”), among AMI, the Guarantors and the Trustee and (c) $101.0 million principal amount of the outstanding Second Lien PIK Notes to amend the Second Lien PIK Notes Indenture, which in each case represented the requisite consents from holders of at least a majority of the aggregate principal amount of the applicable notes then outstanding.

As a result of receiving the requisite consents, in August 2014, AMI and the Trustee entered into (a) the Fourth Supplemental Indenture (the “First Lien Notes Supplemental Indenture”) to the First Lien Notes Indenture, (b) the Third Supplemental Indenture (the “Second Lien Notes Supplemental Indenture”) to the Second Lien Notes Indenture and (c) the First Supplemental Indenture (the “Second Lien PIK Notes Supplemental Indenture” and, together with the First Lien Notes Supplemental Indenture and the Second Lien Notes Supplemental Indenture, the “Supplemental Indentures”) to the Second Lien PIK Notes Indenture.

The Supplemental Indentures amend the Indentures to (a) permit the transactions contemplated by the Merger Agreement and the Note Purchase Agreement, including amending the definition of “Change of Control” and permitting the issuance of the Additional Notes pursuant to the Second Lien PIK Notes Indenture; and (b) in the case of the Second Lien PIK Notes Supplemental Indenture only, eliminate AMI’s obligation to apply Cash Interest Savings (as defined in the Second Lien PIK Notes Indenture) to repurchase outstanding First Lien Notes for the semi-annual interest periods ending on June 15, 2014 and December 15, 2014 (collectively, the “Amendments”). Pursuant to the terms of the Supplemental Indentures, the Supplemental Indentures became effective, and the Amendments became operative, immediately upon execution of the Supplemental Indentures.

In January 2015, we entered into a supplemental indenture (the “2015 Supplemental Indenture”) by and between the Company and Wilmington Trust, National Association, as successor by merger to Wilmington Trust FSB, as trustee and collateral agent (collectively, the “Existing Second Lien Trustee”), to an indenture, dated as of December 22, 2010, by and among the Company, the guarantors party thereto and the Existing Second Lien Trustee (as amended, supplemented or otherwise modified through the date of amendment, the “Existing Second Lien Indenture”). The 2015 Supplemental Indenture contemplates, among other things, the Exchange of First Lien Notes for the New Second Lien Notes.


45


Exchange Agreement Amendment

In August 2014, AMI and the Guarantors entered into an Amendment (the "Exchange Agreement Amendment") to the Exchange Agreement, dated as of September 27, 2013, among AMI, the Guarantors and the Investors. The Exchange Agreement Amendment provided that AMI was not required to apply the Cash Interest Savings (as defined in the Second Lien PIK Notes Indenture) to repurchase outstanding First Lien Notes for the semi-annual periods ended June 15, 2014 and December 15, 2014.

Covenant Compliance

As discussed above, our 2010 Revolving Credit Facility, Amended and Restated Revolving Credit Facility and the indentures governing the First Lien Notes, the Second Lien Notes and the New Second Lien Notes contain various restrictive covenants.

In February 2015, pursuant to our Amended and Restated Revolving Credit Facility, the maximum first lien leverage ratio covenant was amended to be equal to or less than 4.75 to 1.00 for the quarter ending March 31, 2015 and 4.50 to 1.00 from April 1, 2015 through December 2016, the maturity date of the Amended and Restated Revolving Credit Facility. The first lien leverage ratio is calculated as the Total First Lien Debt to Consolidated EBITDA (each as defined in the Amended and Restated Revolving Credit Facility).

In addition to the first lien leverage ratio, the Amended and Restated Revolving Credit Facility includes a consolidated leverage ratio and an interest coverage ratio. The consolidated leverage ratio covenant is calculated as the Total Debt to Consolidated EBITDA (each as defined in the Amended and Restated Revolving Credit Facility) and must be equal to or less than 5.50 to 1.00 for the quarter ended March 31, 2015, 4.75 to 1.00 from April 1, 2015 through September 30, 2015 and 5.50 to 1.00 from October 1, 2015 through December 2016.

The interest coverage ratio covenant is calculated as the Consolidated EBITDA to Cash Interest Expense (each as defined in the Amended and Restated Revolving Credit Facility) and must be equal to or greater than 1.10 to 1.00 for the quarter ended March 31, 2015 and 1.50 to 1.00 from April 1, 2015 through December 2016.

As of March 31, 2015, the first lien leverage ratio was 4.27 to 1.00, the consolidated leverage ratio was 4.77 to 1.00 and the interest coverage ratio was 1.47 to 1.00 and the Company was in compliance with the covenants under the Amended and Restated Revolving Credit Facility and the indentures governing the First Lien Notes, the Second Lien Notes and the New Second Lien Notes.

Although there can be no assurances, management believes that, based on current expectations (including projected borrowings and repayments under the Amended and Restated Revolving Credit Facility and our recent debt reductions), our operating results for the next twelve months will be sufficient to satisfy the financial covenants under the Amended and Restated Revolving Credit Facility. Our ability to satisfy such financial covenant is dependent on our business performing in accordance with our projections.  If the performance of our business deviates from our projections, we may not be able to satisfy such financial covenants.  Our projections are subject to a number of factors, many of which are events beyond our control, which could cause our actual results to differ materially from our projections (see "Risk Factors" included in Part I, Item 1A of this Annual Report). If we do not comply with our financial covenants, we would be in default under the Amended and Restated Revolving Credit Facility, which could result in all our debt being accelerated due to cross-default provisions in the indentures governing the First Lien Notes, the Second Lien Notes and the New Second Lien Notes.

We have the ability to incur additional debt, subject to limitations imposed by our Amended and Restated Revolving Credit Facility and the indentures governing the First Lien Notes, the Second Lien Notes and the New Second Lien Notes. Under our Amended and Restated Revolving Credit Facility and the indentures governing the First Lien Notes, the Second Lien Notes and the New Second Lien Notes, in addition to specified permitted indebtedness, we will be able to incur additional indebtedness as long as on a pro forma basis our consolidated leverage ratio is less than 4.50 to 1.00.


46


Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures

Adjusted EBITDA, a measure we use to gauge our operating performance, is defined as net income (loss) attributable to the Company plus interest expense, provision (benefit) for income taxes, depreciation and amortization, provision for impairment of intangible assets and goodwill, deferred debt costs and deferred rack costs, adjusted for merger and related transaction(s) costs, restructuring costs and severance, costs related to launches, re-launches or closures of publications and certain other costs. We believe that the inclusion of Adjusted EBITDA is appropriate to evaluate our operating performance compared to our operating plans and/or prior years and to value prospective acquisitions. We also believe that Adjusted EBITDA is helpful in highlighting trends because Adjusted EBITDA excludes the impact of certain items that can differ significantly from company to company, depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments.

Management believes our investors use Adjusted EBITDA as a gauge to measure the performance of their investment in the Company. Management compensates for limitations of using non-GAAP financial measures by using them to supplement GAAP results to provide a more complete understanding of the factors and trends affecting our business than GAAP results alone can provide. Adjusted EBITDA is not a recognized term under GAAP and does not purport to be an alternative to income from continuing operations as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. Additionally, Adjusted EBITDA is not intended to be a measure of free cash flow available for management’s discretionary use as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. The presentation of Adjusted EBITDA has limitations as an analytical tool, and it should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Because not all companies use identical calculations, our presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.

Set forth below is a reconciliation of net loss attributable to American Media, Inc. and subsidiaries to Adjusted EBITDA for fiscal 2015, 2014 and 2013:

 
Fiscal years ended March 31,
in thousands
2015
 
2014
 
2013
Net loss attributable to American Media, Inc. and subsidiaries
$
(27,127
)
 
$
(54,319
)
 
$
(56,239
)
Add (deduct):
 
 
 
 
 
Interest expense
50,846

 
58,353

 
59,779

Provision (benefit) for income taxes
(31,268
)
 
33,278

 
(5,994
)
Depreciation and amortization
14,920

 
14,203

 
9,932

Impairment of goodwill and intangible assets
18,458

 
9,238

 
54,523

Amortization of deferred debt costs
4,011

 
1,664

 
1,433

Amortization of deferred rack costs
5,869

 
6,585

 
8,340

Amortization of short-term racks
8,581

 
8,581

 
8,123

Merger and related transaction(s) costs
4,755

 

 

Restructuring costs and severance
7,087

 
2,802

 
2,395

Loss on sale of publications
2,472

 

 

Costs related to launches and closures of publications
1,260

 
2,686

 
2,121

Costs related to relaunch of publications

 
150

 
2,670

Restructuring costs related to divestiture of DSI

 
2,784

 

Adjustment for net losses of DSI

 
2,676

 

AMI share of bad debt related to wholesaler shutdowns
8,352

 
5,052

 

Investment in new digital strategy

 
4,032

 
2,895

Pro forma adjustment related to acquisition of Soap Opera Digest

 

 
439

Pro forma adjustment related to investment in affiliates
312

 
1,502

 

Impact of Superstorm Sandy

 
183

 
4,752

Other
5,902

 
5,080

 
5,140

Adjusted EBITDA
$
74,430

 
$
104,530

 
$
100,309



47


CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS

The following table summarizes our principal contractual obligations as of March 31, 2015:
 
 
Payments due by period
 
 
Less than
1-3
4-5
After 5
(in thousands)
Total
1 Year
Years
Years
Years
Long-term debt (1)
$
322,269

$

$
287,875

$
2,198

$
32,196

Debt interest (2)
108,865

35,877

63,205

8,498

1,285

Mr. Olympia, LLC put option (3)
3,000

3,000




Long-term agreements (4)
175,451

38,706

72,826

63,890

29

Operating lease obligations
22,471

2,093

5,427

6,240

8,711

Consulting agreements (5)
36,479

7,370

13,594

11,284

4,231

Total contractual cash obligations (6)
$
668,535

$
87,046

$
442,927

$
92,110

$
46,452

(1)
 
Includes principal payments on the Amended and Restated Revolving Credit Facility and Senior Secured Notes. See the notes to consolidated financial statements in this Annual Report, specifically Notes 4, "Revolving Credit Facility" and Note 5, "Senior Secured Notes," for further discussion of long-term debt.
(2)
 
Includes interest payments on both fixed and variable rate obligations and the commitment fee on the unused portion of the Amended and Restated Revolving Credit Facility. The interest to be paid on the variable rate obligation is affected by changes in our applicable borrowing rate. See the notes to consolidated financial statements in this Annual Report, specifically Note 4, "Revolving Credit Facility" and Note 5, "Senior Secured Notes," for further discussion.
(3)
 
See notes to consolidated financial statements in this Annual Report, specifically Note 9, "Investments in Affiliates and Redeemable Noncontrolling Interests," for a further discussion of the put option as it relates to Mr. Olympia, LLC.
(4)
 
See notes to consolidated financial statements in this Annual Report, specifically Note 11, "Commitments and Contingencies," for a further discussion of the long-term agreements related to the circulation of publications. Certain contracts require pricing adjustments based on the Consumer Price Index.
(5)
 
See notes to consolidated financial statements in this Annual Report, specifically Note 11, "Commitments and Contingencies," for a further discussion of the consulting agreements with unrelated third parties to assist with the marketing of our brands.
(6)
 
The timing of future cash flows related to tax liabilities of $1.3 million cannot be reasonably estimated.

SEASONALITY AND QUARTERLY FLUCTUATIONS

Our business has always experienced seasonality, which we expect will continue, due to advertising patterns based on consumer reading habits. Fluctuations in quarterly performance are also due to variations in our publication schedule and variability of audience traffic on our websites. Not all of our publications are published on a regular schedule throughout the year. Additionally, the publication schedule for our special interest publications can vary and lead to quarterly fluctuations in our operating results.

Advertising revenue from our magazines and websites is typically highest in our fourth fiscal quarter due to our health and fitness magazines. During our fourth fiscal quarter, which begins on January 1st, advertisers and consumers are focused on the "New Year and New You." Certain newsstand costs vary from quarter to quarter, particularly marketing costs associated with the distribution of our magazines.

OFF-BALANCE SHEET FINANCING

We do not have any off-balance sheet financing arrangements.


48


APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP). Preparing financial statements requires management to make estimates, judgments and assumptions regarding uncertainties that may affect the reported amounts of assets, liabilities, revenue and expenses. We evaluate our estimates on an on-going basis, including those related to revenue, trade receivables and allowance for doubtful accounts, goodwill and other intangible assets, income taxes and contingent liabilities.

We base our estimates, judgments and assumptions on historical experience and other relevant factors that are believed to be reasonable under the circumstances. In any given reporting period, our actual results may differ from the estimates, judgments and assumptions used in preparing our consolidated financial statements.

Critical accounting policies are those that are both most important to the portrayal of a company’s financial position and results of operations, and require management’s most difficult, subjective or complex judgments. The following accounting policies and estimates are those that management deems most critical. For a complete listing of our significant accounting policies, see Note 2, "Summary of Significant Account Policies" to the consolidated financial statements included in Item 8 of this Annual Report.

Revenue Recognition

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collection is reasonably assured. Revenues and associated accounts receivable are recorded net of provisions for estimated future returns, doubtful accounts and other allowances. Allowances for uncollectible receivables are estimated based upon a combination of write-off history, aging analysis and any specifically identified troubled accounts.

Newsstand revenues are recognized based on the on-sale dates of magazines and are initially recorded based upon estimates of sales, net of brokerage, returns and estimates of newsstand related fees. Estimated returns are recorded based upon historical experience.

Print advertising revenues are recorded based on the on-sale dates of magazines when the advertisement appears in the magazine and are stated net of agency commissions and cash and sales discounts. Digital advertising revenues on the Company's websites are generally based on the sale of impression-based advertisements, which are recorded in the period in which the advertisements are served.

Other revenues, primarily from licensing opportunities and strategic partnerships for our branded products as well as marketing services performed for third parties by DSI, are recognized when the service is performed.

Goodwill and Intangible Assets
 
The Company's goodwill and related indefinite-lived intangible assets are tested for impairment on an annual basis, on the first day of the fourth fiscal quarter or more often if an event occurs or circumstances change that would indicate a potential impairment exists. Impairment losses, if any, are reflected in operating income or loss in the consolidated financial statements. The Company's reporting units consist of each of its publications and other consolidated subsidiaries.
 

The Company reviews finite-lived intangible assets for impairment whenever an event occurs or circumstances change to indicate that the carrying amount of such assets may not be fully recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss is based on the fair value of the asset compared to its carrying value. Impairment losses, if any, are reflected in operating income or loss in the consolidated financial statements.

In assessing goodwill and intangible assets for impairment, the Company makes estimates of fair value that are based on its projection of revenues, operating costs and cash flows of each reporting unit, considering historical and anticipated future results and general economic and market conditions as well as the impact of planned business or operational strategies. The valuations employ a combination of income and market approaches to measure fair value. Changes in management's judgments and projections or assumptions used could result in a significantly different estimate of the fair value of the reporting units and could materially change the impairment charge related to goodwill and tradenames. For a detailed description of impairment charges, see Note 3, “Goodwill and Other Identified Intangible Assets.”


49


During an evaluation of goodwill and other identified intangible assets at September 30, 2014, the Company determined that indicators were present in certain reporting units which would suggest the fair value of the reporting unit may have declined below the carrying value. This decline was primarily due to the continuing softness in the consumer magazine sector, which impacts consumer and advertising spending, including further declines in certain advertising markets, resulting in lowered future cash flow projections.

As a result, an interim impairment test of goodwill and other indefinite lived intangible assets was performed as of September 30, 2014 for certain reporting units in accordance with FASB Accounting Standards Codification (“ASC”) Topic No. 350, “Goodwill and Other Intangible Assets” (“ASC 350”). Impairment testing for goodwill is a two-step process. The first step compares the fair value of the reporting unit to its carrying value, including goodwill. If the carrying value of the reporting unit exceeds its fair value, the second step of the test is performed to measure the amount of the impairment charge, if any. The second step compares the implied fair value of the reporting unit's goodwill with the carrying value of that goodwill and an impairment charge is recorded for the difference. Impairment testing for indefinite lived intangible assets, consisting of tradenames, compares the fair value of the tradename to the carrying value and an impairment charge is recorded for any excess carrying value over fair value.

The evaluation resulted in the carrying value of tradenames for certain reporting units to exceed the estimated fair value. As a result, the Company recorded a pre-tax non-cash impairment charge of $17.4 million to reduce the carrying value of goodwill and tradenames during the second quarter of fiscal 2015.

As of March 31, 2015, the reporting units in our Celebrity segment continue to be negatively impacted by the 18.0% decline in the celebrity newsstand market and the industry-wide disruption in our wholesaler channel coupled with the 11% decline in the consumer advertising market. While our current expectations have resulted in fair values of the reporting units in excess of carrying values, if our assumptions are not realized, it is possible that in the future additional impairment charges may be recorded and could be material to the consolidated financial statements. The Company will continue to monitor the recoverability of its remaining goodwill.

Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of interim or annual goodwill impairment tests will prove to be accurate predictions of the future. Examples of events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair value of the aforementioned reporting units may include such items as follows:

A prolonged downturn in the business environment in which the reporting units operate (i.e. circulation and advertising decreases) especially in the markets we serve;

An economic recovery that significantly differs from our assumptions in timing or degree;

Volatility in debt markets resulting in higher discount rates; and

Unexpected regulatory changes for our advertisers.

If our assumptions are not realized, it is possible that in the future an impairment charge may need to be recorded. However, it is not possible at this time to determine if an impairment charge would result or if such a charge would be material.

Long-Lived Assets
 
The Company reviews long-lived assets for impairment whenever an event occurs or circumstances change to indicate that the carrying amount of such assets may not be fully recoverable. When such factors, events or circumstances indicate that long-lived assets should be evaluated for possible impairment, the Company uses an estimate of undiscounted future cash flows over the remaining lives of the assets to measure recoverability. If the estimated undiscounted cash flows are less than the carrying value of the asset, the loss is measured as the amount by which the carrying value of the asset exceeds fair value computed on a discounted cash flow basis.

For fiscal 2015, 2014 and 2013, no impairment charges for long-lived tangible and intangible assets were deemed necessary.


50


Income Taxes

Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The asset and liability method of accounting for deferred income taxes requires a valuation against deferred tax assets if based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The effect on any changes in deferred tax assets and liabilities as a result of a change in tax rates is recognized in income.

RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

On April 1, 2014, the Company adopted ASU 2013-11, Income Taxes (Topic 740), Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists ("ASU 2013-11"). ASU 2013-11 requires the netting of unrecognized tax benefits against a deferred tax asset for a loss or other carryforward that would apply in settlement of uncertain tax positions. Under ASU 2013-11 unrecognized tax benefits are netted against all available same-jurisdiction loss or other tax carryforwards that would be utilized, rather than only against carryforwards that are created by the unrecognized tax benefits. The adoption of ASU 2013-11 did not have an impact on the Company's unaudited condensed consolidated financial position, results of operations or cash flows.

Recently Issued Accounting Pronouncements

In April 2014, the FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (Topic 205 and Topic 360) ("ASU 2014-08") which raises the threshold for disposals to qualify as discontinued operations. Under this new guidance, a discontinued operation is (1) a component of an entity or group of components that has been disposed of or is classified as held for sale that represents a strategic shift that has or will have a major effect on an entity's operations and financial results or (2) an acquired business that is classified as held for sale on the acquisition date. This guidance also requires expanded or new disclosures for discontinued operations, individually material disposals that do not meet the definition of a discontinued operation, an entity's continuing involvement with a discontinued operation following disposal, and retained equity method investments in a discontinued operation. ASU 2014-08 is effective for the Company on April 1, 2015 on a prospective basis, with early adoption permitted for disposals that have not been reported in financial statements previously issued. The Company does not expect the adoption of this guidance to have an impact on the consolidated financial position and results of operations.

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties About an Entity's Ability to Continue as a Going Concern (Topic 205) ("ASU 2014-15") which establishes management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and setting rules for how this information should be disclosed in the financial statements. This guidance is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2016, with early adoption permitted. The Company does not expect the adoption of this guidance to have an impact on the consolidated financial position and results of operations.

In January 2015, the FASB issued ASU No. 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20) ("ASU 2015-01") which simplifies the income statement presentation by eliminating the concept of extraordinary items. The guidance is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2015, with early adoption permitted. The Company does not expect the adoption of this guidance to have an impact on the consolidated financial position and results of operations.

In February 2015, the FASB issued ASU 2015-02, Consolidations, Amendments to the Consolidation Analysis (Topic 810) ("ASU 2015-02"), which changes the identification of variable interests, the variable interest characteristic for a limited partnership or similar entity and the primary beneficiary determination all of which will improve the consolidation guidance as well as increase transparency and consistency of financial reporting. The guidance is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2015, with early adoption permitted. The Company does not expect the adoption of this guidance to have an impact on the consolidated financial position and results of operations.


51


In April 2015, the FASB issued a proposal for a one-year deferral of the effective date for ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). Under this proposal, the standard would be effective for public entities for annual reporting periods beginning after December 15, 2017 and interim periods therein. ASU 2014-09 supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. As a result of the one-year deferral, ASU 2014-09 will now be effective for the Company on April 1, 2018 using one of two retrospective application methods. The Company has not determined the potential effects on the consolidated financial position, results of operations or cash flows.

In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest, Simplifying the Presentation of Debt Issuance Costs (Subtopic 835-30) ("ASU 2015-03") which requires the presentation of debt issuance costs to be reflected as a reduction from the face amount of the related debt, with amortization recorded as interest expense, rather than recording as a deferred asset. The guidance is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2015, and requires retrospective application. The Company does not expect the adoption of this guidance to have a significant impact on the consolidated financial position and results of operations, although it will change the financial statement classification of the deferred debt cost. As of March 31, 2015 and 2014, the Company had $6.4 million and $8.1 million of net deferred debt costs, respectively, included on the consolidated balance sheets. Under the new guidance, the net deferred debt costs would offset the carrying amount of the respective debt on the consolidated balance sheets.

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued accounting pronouncements that are not yet effective will not have a material impact on our financial position, results of operations or cash flows upon adoption.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to certain financial risks in the ordinary course of our business. These risks primarily result from volatility in interest rates, foreign exchange rates, inflation and other general market risks.

Interest Rate Risk

We are exposed to market risk from fluctuations in interest rates. Our primary interest rate risk exposure relates to: (i) the interest rate risk on long-term borrowings, (ii) the impact of interest rate movements on our ability to meet interest expense requirements and comply with financial covenants, and (iii) the impact of interest rate movements on our ability to obtain adequate financing to fund acquisitions, if any.

We generally manage our exposure to interest rate fluctuations through the use of a combination of fixed and variable rate debt. At March 31, 2015, we had $309.6 million outstanding in fixed rate debt. There are no earnings or liquidity risks associated with the Company’s fixed rate debt. Under the Amended and Restated Revolving Credit Facility, we have $14.7 million outstanding in variable rate debt at March 31, 2015. The Company is subject to earnings and liquidity risks associated with the variable rate debt.

To date, we have not entered into any derivative financial instruments, that are designated as hedges, for the purpose of reducing our exposure to adverse fluctuations in interest rates.

Foreign Currency Exchange Risk

We face exposures to adverse movements in foreign currency exchange rates, as a portion of our revenues, expenses, assets and liabilities are denominated in currencies other than the U.S. dollar, primarily the Canadian dollar, the British pound, and the Euro. These exposures may change over time as our international business practices expand.


52


We do not believe movements in foreign currencies in which we transact business will significantly affect future net earnings or losses. Foreign currency exchange risk can be quantified by estimating the change in operating revenue resulting from a hypothetical 10% adverse change in foreign exchange rates. We believe such an adverse change would not currently have a material impact on our results of operations. However, if our international operations grow, our risk associated with fluctuations in foreign currency exchange rates could increase.

To date, we have not entered into any derivative financial instruments, that are designated as hedges, for the purpose of reducing our exposure to adverse fluctuations in foreign currency exchange rates.

Inflationary Risk

We are exposed to fluctuations in operating expenses due to contractual agreements with printers, paper suppliers and wholesale distributors. In addition, we are also exposed to fluctuations in the cost of fuel, paper and postage and certain product placement related costs.

While we do not believe these inflationary risks have had a material effect on our business, financial condition or results of operations, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could have a material impact on our business, financial condition and results of operations.


Item 8. Financial Statements and Supplementary Data.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
Page
 
 
 
Financial Statements
 
 
Consolidated Balance Sheets as of March 31, 2015 and 2014
 
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the fiscal years ended March 31, 2015, 2014 and 2013
 
Consolidated Statements of Stockholders' Deficit for the fiscal years ended March 31, 2015, 2014 and 2013
 
Consolidated Statements of Cash Flows for the fiscal years ended March 31, 2015, 2014 and 2013
 
Notes to Consolidated Financial Statements
 
 
 
Financial Statement Schedule
 
 
Schedule II - Valuation and Qualifying Accounts for the fiscal years ended March 31, 2015, 2014 and 2013


53


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of American Media, Inc.:
Boca Raton, Florida

We have audited the accompanying consolidated balance sheets of American Media, Inc. and subsidiaries (the “Company”) as of March 31, 2015 and 2014, and the related consolidated statements of income (loss) and comprehensive income (loss), stockholders’ deficit, and cash flows for each of the three years in the period ended March 31, 2015. Our audits also included the financial statement schedule listed in the Table of Contents at Item 15. These financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2015 and 2014, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2015, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.


/s/ DELOITTE & TOUCHE LLP
Certified Public Accountants

Boca Raton, Florida
June 30, 2015




54


AMERICAN MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
 
March 31,
 
2015
 
2014
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents ($880 and $1,525 related to VIEs, respectively)
$
3,452

 
$
3,030

Trade receivables, net of allowance for doubtful accounts of $3,281 and $6,533, respectively ($1 and $1 related to VIEs, respectively)
39,412

 
33,138

Inventories ($95 and $285 related to VIEs, respectively)
873

 
10,253

Prepaid expenses and other current assets ($198 and $254 related to VIEs, respectively)
11,356

 
14,743

Assets of discontinued operations (see Note 10)

 
72,774

Total current assets
55,093

 
133,938

PROPERTY AND EQUIPMENT, NET:
 
 
 
Leasehold improvements
3,801

 
3,798

Furniture, fixtures and equipment
43,979

 
40,279

Less – accumulated depreciation
(30,230
)
 
(23,128
)
Total property and equipment, net ($25 and $29 related to VIEs, respectively)
17,550

 
20,949

OTHER ASSETS:
 
 
 
Deferred debt costs, net
6,383

 
8,125

Deferred rack costs, net
4,824

 
4,605

Investments in affiliates
803

 
2,859

Other long-term assets
3,193

 
3,841

Total other assets
15,203

 
19,430

GOODWILL AND OTHER IDENTIFIED INTANGIBLE ASSETS:
 
 
 
Goodwill
153,998

 
162,888

Other identified intangibles, net of accumulated amortization of $122,791 and $118,497, respectively ($6,000 related to VIEs)
224,181

 
235,435

Total goodwill and other identified intangible assets, net
378,179

 
398,323

TOTAL ASSETS
$
466,025

 
$
572,640

LIABILITIES AND STOCKHOLDERS' DEFICIT
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable ($43 and $42 related to VIEs, respectively)
$
15,781

 
$
19,403

Accrued expenses and other liabilities ($194 and $122 related to VIEs, respectively)
44,015

 
26,528

Accrued interest
10,075

 
15,897

Deferred revenues ($589 and $388 related to VIEs, respectively)
26,734

 
30,019

Liabilities of discontinued operations (see Note 10)

 
21,065

Total current liabilities
96,605

 
112,912

NON-CURRENT LIABILITIES:
 
 
 
Senior secured notes, net
309,569

 
469,477

Revolving credit facility
14,700

 
29,000

Other non-current liabilities
8,352

 
7,172

Deferred income taxes
70,747

 
83,052

Total liabilities
499,973

 
701,613

COMMITMENTS AND CONTINGENCIES (see Note 11)


 


Redeemable noncontrolling interests (see Note 9)
3,000

 
3,000

STOCKHOLDERS' DEFICIT:
 
 
 
Common stock, $0.0001 par value; 100 shares and 10,000,000 shares issued and outstanding as of March 31, 2015 and 2014, respectively

 
1

Additional paid-in capital
945,037

 
822,723

Accumulated deficit
(981,593
)
 
(954,466
)
Accumulated other comprehensive loss
(392
)
 
(231
)
Total stockholders' deficit
(36,948
)
 
(131,973
)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
$
466,025

 
$
572,640

The accompanying notes are an integral part of the Consolidated Financial Statements.

55


AMERICAN MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
(in thousands)
 
Fiscal years ended March 31,
 
2015
 
2014
 
2013
OPERATING REVENUES:
 
 
 
 
 
Circulation
$
166,199

 
$
187,613

 
$
202,958

Advertising
67,258

 
72,953

 
65,212

Other
11,723

 
26,780

 
28,464

Total operating revenues
245,180

 
287,346

 
296,634

OPERATING EXPENSES:
 
 
 
 
 
Editorial
26,804

 
30,870

 
33,620

Production
66,088

 
75,664

 
82,006

Distribution, circulation and other costs
39,010

 
46,023

 
53,956

Selling, general and administrative
86,636

 
78,331

 
67,854

Depreciation and amortization
13,965

 
13,435

 
9,573

Impairment of goodwill and intangible assets
18,458

 
9,238

 
50,598

Total operating expenses
250,961

 
253,561

 
297,607

OPERATING INCOME (LOSS)
(5,781
)
 
33,785

 
(973
)
OTHER EXPENSES:
 
 
 
 
 
Interest expense
(50,847
)
 
(58,355
)
 
(59,779
)
Amortization of deferred debt costs
(4,011
)
 
(1,664
)
 
(1,433
)
Other income (expenses), net
3,708

 
(79
)
 
(252
)
Total other expenses, net
(51,150
)
 
(60,098
)
 
(61,464
)
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
(56,931
)
 
(26,313
)
 
(62,437
)
INCOME TAX PROVISION (BENEFIT)
(15,689
)
 
30,659

 
(6,436
)
NET LOSS FROM CONTINUING OPERATIONS
(41,242
)
 
(56,972
)
 
(56,001
)
INCOME FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES
15,334

 
3,701

 
456

NET LOSS
(25,908
)
 
(53,271
)
 
(55,545
)
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
(1,219
)
 
(1,048
)
 
(694
)
NET LOSS ATTRIBUTABLE TO AMERICAN MEDIA, INC. AND SUBSIDIARIES
$
(27,127
)
 
$
(54,319
)
 
$
(56,239
)
 
 
 
 
 
 
 
Fiscal years ended March 31,
 
2015
 
2014
 
2013
NET LOSS
$
(25,908
)
 
$
(53,271
)
 
$
(55,545
)
Foreign currency translation adjustment
(161
)
 
108

 
(124
)
Comprehensive loss
(26,069
)
 
(53,163
)
 
(55,669
)
Less: comprehensive income attributable to noncontrolling interests
(1,219
)
 
(1,048
)
 
(694
)
COMPREHENSIVE LOSS ATTRIBUTABLE TO AMERICAN MEDIA, INC. AND SUBSIDIARIES
$
(27,288
)
 
$
(54,211
)
 
$
(56,363
)



The accompanying notes are an integral part of the Consolidated Financial Statements.

56


AMERICAN MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(in thousands, except share information)

 
 
 
 
 
Accumulated
 
 
 
 
Additional
 
other
Total
 
Common stock
paid-in
Accumulated
comprehensive
stockholders'
 
Shares
Total
capital
deficit
income (loss)
deficit
Balances, March 31, 2012
10,000,000

$
1

$
822,773

$
(843,908
)
$
(215
)
$
(21,349
)
Net loss



(56,239
)

(56,239
)
Foreign currency translation




(124
)
(124
)
Other


(50
)


(50
)
Balances, March 31, 2013
10,000,000

1

822,723

(900,147
)
(339
)
(77,762
)
Net loss



(54,319
)

(54,319
)
Foreign currency translation




108

108

Balances, March 31, 2014
10,000,000

1

822,723

(954,466
)
(231
)
(131,973
)
Net loss



(27,127
)

(27,127
)
Foreign currency translation




(161
)
(161
)
Debt for equity conversion, net of expenses (Note 5)


121,535



121,535

Issuance of common stock (Note 14)
1,172,150


205



205

Retirement of common stock (Note 14)
(11,172,150
)
(1
)
1




Issuance of common stock (Note 14)
100






Capital contribution (Note 14)


573



573

Balances, March 31, 2015
100

$

$
945,037

$
(981,593
)
$
(392
)
$
(36,948
)






















The accompanying notes are an integral part of the Consolidated Financial Statements.

57


AMERICAN MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
Fiscal years ended March 31,
 
2015
 
2014
 
2013
OPERATING ACTIVITIES
 
 
 
 
 
Net loss
$
(25,908
)
 
$
(53,271
)
 
$
(55,545
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
 
Depreciation and amortization
14,920

 
14,203

 
9,932

Impairment of goodwill and intangible assets
18,458

 
9,238

 
54,523

Amortization of deferred debt costs
4,011

 
1,664

 
1,433

Amortization of deferred rack costs
5,869

 
6,585

 
8,340

Deferred income tax (benefit) provision
(31,703
)
 
33,039

 
(6,224
)
Non-cash payment-in-kind interest accretion
4,809

 
1,912

 

Provision for doubtful accounts
8,721

 
5,307

 
2,774

Loss on sale of publications
2,472

 

 

Other
4,410

 
499

 
434

Changes in operating assets and liabilities:
 
 
 
 
 
Trade receivables
(3,497
)
 
(6,858
)
 
5,679

Inventories
9,868

 
2,243

 
3,981

Prepaid expenses and other current assets
4,964

 
(1,727
)
 
2,989

Deferred rack costs
(6,149
)
 
(5,054
)
 
(4,978
)
Other long-term assets
648

 
(2,210
)
 
(9
)
Accounts payable
(3,925
)
 
1,798

 
1,657

Accrued expenses and other liabilities
10,661

 
1,365

 
(4,555
)
Accrued interest
(3,175
)
 
(926
)
 
(431
)
Other non-current liabilities
1,180

 
3,213

 
(408
)
Deferred revenues
(3,929
)
 
(1,226
)
 
(4,497
)
Total changes in operating assets and liabilities
6,646

 
(9,382
)
 
(572
)
Net cash provided by operating activities
12,705

 
9,794

 
15,095

INVESTING ACTIVITIES
 
 
 
 
 
Purchases of property and equipment
(7,176
)
 
(10,514
)
 
(9,566
)
Purchases of intangible assets
(2,738
)
 
(5,615
)
 
(2,564
)
Proceeds from sale of publications
63,000

 

 

Investments in affiliates

 
(2,536
)
 
(350
)
Distributions from affiliates
2,570

 

 

Other
9

 
(155
)
 
(200
)
Net cash provided by (used in) investing activities
55,665

 
(18,820
)
 
(12,680
)
FINANCING ACTIVITIES
 
 
 
 
 
Proceeds from revolving credit facility
62,800

 
95,600

 
66,500

Repayments to revolving credit facility
(77,100
)
 
(78,600
)
 
(61,500
)
Proceeds from issuance of senior secured notes
12,500

 

 

Senior secured notes repurchases
(56,100
)
 
(2,325
)
 

Capital contribution
573

 

 

Costs incurred in restructuring
(4,315
)
 

 

Redemption premium payment
(2,206
)
 
(201
)
 

Payment of debt costs
(2,073
)
 

 

Payments to noncontrolling interest holders of Odyssey

 

 
(6,130
)
Payments to noncontrolling interest holders of Olympia
(1,253
)
 
(1,004
)
 
(694
)
Payments for redemption of Odyssey preferred stock

 
(3,961
)
 
(3,192
)
Net cash (used in) provided by financing activities
(67,174
)
 
9,509

 
(5,016
)
Effect of exchange rate changes on cash
(774
)
 
189

 
(267
)
Net increase (decrease) in cash and cash equivalents
422

 
672

 
(2,868
)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
3,030

 
2,358

 
5,226

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
3,452

 
$
3,030

 
$
2,358

Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Cash paid during the period for:
 
 
 
 
 
Income taxes
$
445

 
$
35

 
$
98

Interest
$
46,109

 
$
55,824

 
$
59,351

Non-cash property and equipment (incurred but not paid)
$
4

 
$
498

 
$

Non-cash debt for equity exchange
$
123,960

 
$

 
$

The accompanying notes are an integral part of the Consolidated Financial Statements.

58


AMERICAN MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Nature of the Business

Description of the Business

American Media, Inc. and its subsidiaries (collectively, the "Company", "AMI", "we", "our" or "us") owns and operates the leading celebrity and health and fitness media brands in the United States. AMI was incorporated under the laws of the State of Delaware in 1990 and is headquartered in Boca Raton, Florida.

In August 2014, the Company entered into an agreement and plan of merger (the "Merger Agreement") with AMI Parent Holdings, LLC, a Delaware limited liability company (the "Parent"), which is controlled by certain investors of the Company (collectively, the "Investors"), and AMI Merger Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent (the "Merger Sub"), whereby the Merger Sub was merged with and into the Company (the "Merger") with the Company surviving the Merger as a wholly-owned subsidiary of the Parent. As a result of the Merger, the Parent acquired 100% of the issued and outstanding shares of common stock of the Company. See Note 14, "Capital Structure" for further information.

In September 2014, the Company entered into an exchange agreement (the "Debt for Equity Exchange Agreement") with the Parent and the Investors pursuant to which the Investors exchanged approximately $121.1 million in aggregate principal amount of senior secured notes of the Company, plus accrued and unpaid interest of approximately $2.9 million, for equity interests in the Parent. See Note 5, "Senior Secured Notes" for further information regarding the Company's senior secured debt agreements and amendments thereto.

In November 2014, we sold our Country Weekly publication for approximately $3 million in cash and entered into a long-term publishing services agreement. The operating results of Country Weekly were insignificant to the Company's consolidated financial statements for the fiscal years ended March 31, 2015, 2014 and 2013 and did not meet the criteria for presentation of discontinued operations. It is the Company's policy to present gains and losses from the sale of businesses that do not meet the criteria for presentation as discontinued operations within other income (expenses) in the consolidated financial statements.

In January 2015, we sold our Shape, Fit Pregnancy and Natural Health publications, which comprised our Women's Active Lifestyle segment, for approximately $60 million in cash plus an earnout of up to $60 million. See Note 10, "Dispositions and Acquisitions" for further information. After giving effect to the divestiture of our Women's Active Lifestyle segment, the Company operates and reports financial and operating information in the following two segments: Celebrity Brands and Men's Active Lifestyle. The Company also provides general corporate services to its segments which is reported as a third, non-operating segment, Corporate and Other. See Note 13, "Business Segment Information" for further information regarding the Company's reporting segments.

As of March 31, 2015, we own and operate a diversified portfolio of 10 publications; National Enquirer, Star, Globe, National Examiner, OK! and Soap Opera Digest are published weekly; Men's Fitness, Muscle & Fitness and Flex; are published 10 times per year and Muscle & Fitness Hers is published bi-monthly. Total circulation of these print publications were approximately 3.2 million copies per issue during fiscal 2015.

Our fiscal year ended on March 31, 2015 and may be referred to herein as fiscal 2015.

Liquidity

The Company is highly leveraged. As of March 31, 2015, the Company had approximately $324.3 million of outstanding indebtedness, consisting of $309.6 million of senior secured notes and $14.7 million under the revolving credit facility.

Over the next year, the cash interest payments due under the Company's debt agreements are approximately $34.9 million and there are no scheduled principal payments due. As of March 31, 2015, the Company has $3.5 million of cash and $15.9 million available for borrowing pursuant to the revolving credit facility. The Company's revolving credit facility matures in December 2016.


59


As further discussed in Note 2, "Summary of Significant Accounting Policies - Concentrations," the Company's former second-largest wholesaler ceased operations in May 2014 and filed for bankruptcy in June 2014. The Company is continuing to work with the two remaining major wholesalers and retailers to transition the newsstand circulation to them. There can be no assurances that (i) the transition to certain retailers will be successful, (ii) after completing the transition the Company's revenue will not be temporarily or permanently reduced or (iii) that consumers at the impacted retailers will resume purchasing the Company's publications at the same rate or quantities previously purchased. This transition had an adverse impact on single copy newsstand sales and liquidity during fiscal 2015 and continues to have an adverse impact into the first quarter of fiscal 2016.

The Company's substantial indebtedness could adversely affect the business, financial condition and results of operations. Specifically, the Company's level of indebtedness could have important consequences for the business and operations, including the following:

requiring the Company to dedicate a substantial portion of its cash flow from operations for payments on indebtedness, thereby reducing the availability of such cash flow to fund working capital, capital expenditures and general corporate requirements or to carry out other aspects of the business;

placing the Company at a potential disadvantage compared to its competitors that have less debt;

increasing the Company's vulnerability to general adverse economic and industry conditions;

limiting the Company's ability to make material acquisitions or take advantage of business opportunities that may arise;

limiting the Company's flexibility in planning for, or reacting to, changes in the business industry;

limiting the Company's ability to obtain additional financing to fund future working capital, capital expenditures and other general corporate requirements or to carry out other aspects of the business; and
  
exposing the Company to fluctuations in interest rates as the revolving credit facility has a variable rate of interest.

The Company may need to refinance all or a portion of its indebtedness on or before maturity. The Company cannot assure that it will be able to refinance any of its indebtedness on commercially reasonable terms or at all.

Although the Company is significantly leveraged, it expects that the current cash balances, liquidity provided in connection with the revolving credit facility and cash generated from operations, should be sufficient to meet working capital, capital expenditures, debt service, and other cash needs for the next year.

Note 2 - Summary of Significant Accounting Policies

Principles of Consolidation

Our consolidated financial statements reflect our financial statements, those of our wholly-owned domestic and foreign subsidiaries and those of certain variable interest entities where we are the primary beneficiary. For consolidated entities where we own less than 100% of the equity, we record net income (loss) attributable to noncontrolling interests in our consolidated statements of income (loss) equal to the percentage of the interests retained in such entities by the respective noncontrolling parties. All material intercompany balances and transactions are eliminated in consolidation.

In determining whether we are the primary beneficiary of an entity and therefore required to consolidate, we apply a qualitative approach that determines whether we have both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to that entity. These considerations impact the way we account for our existing joint ventures. We continually assess whether we are the primary beneficiary of a variable interest entity as changes to existing relationships or future transactions occur.

See Note 9, “Investments in Affiliates and Redeemable Noncontrolling Interests.”


60


Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("US GAAP") requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and accompanying notes. Management's estimates are based on the facts and circumstances available at the time estimates are made, past historical experience, risk of loss, general economic conditions and trends, and management's assessments of the probable future outcome of these matters. As a result, actual results could differ from those estimates.

Foreign Currencies

The net assets and operations of entities outside of the United States of America ("U.S.") are translated into U.S. dollars. Assets and liabilities are translated at fiscal year-end exchange rates and income and expense items are translated at average exchange rates prevailing during the fiscal year. Translation adjustments are included in accumulated other comprehensive income (loss).

Cash and Cash Equivalents

Cash and cash equivalents includes cash and short-term investments with original maturities of three months or less. Cash and cash equivalents are stated at cost, which approximates fair value. Cash equivalents are held with high credit quality institutions and are subject to minimal credit and market risk. The value of these assets is based upon quoted prices and markets for identical assets and equals the carrying value, which is considered a Level 1 input.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined on the first-in, first-out method. The Company writes down inventory for estimated obsolescence and/or excess or damaged inventory. Inventory write-downs during fiscal 2015 and 2014 were insignificant. Inventories are comprised of the following at March 31st (in thousands):
 
2015
 
2014
Raw materials – paper
$

 
$
8,468

Finished product — paper, production and distribution costs of future issues
873

 
1,785

Total inventories
$
873

 
$
10,253


In August 2014, the Company entered into a long-term paper supply and purchasing agreement pursuant to which a third party manages all aspects of the Company's raw material paper inventory. As a result, the Company no longer maintains raw material paper inventory.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets are comprised of the following at March 31st (in thousands):
 
2015
2014
Direct response advertising costs
$
2,044

$
2,150

Deferred tax assets, net
1,689


Prepaid insurance
802

1,254

Other prepaid expenses
2,920

6,190

Other receivables
2,946

4,219

Other current assets
955

930

Total prepaid expenses and other current assets
$
11,356

$
14,743


Direct response advertising costs are capitalized when they are expected to result in probable future benefits. These costs are amortized over the period during which future benefits are expected to be received, which is generally the related one-year subscription period. Amortization expense was $3.0 million, $3.2 million and $3.8 million for fiscal 2015, 2014 and 2013, respectively, and is part of distribution, circulation and other cost of sales in the accompanying consolidated financial statements.


61


The asset balance of the capitalized direct response advertising costs is reviewed quarterly to ensure the amount is realizable. Any write-downs resulting from this review are expensed as subscription acquisition advertising costs in the current period. There were no material write-downs during the three fiscal years in the period ended March 31, 2015.

Property and Equipment
 
The Company uses the straight-line method of depreciation for financial reporting. The estimated useful lives used for depreciable fixed assets ranges from three to 10 years. Leasehold improvements are depreciated over the shorter of the remaining lease term or the estimated useful life of the respective asset, and the period for such depreciation ranges from one to five years. Maintenance and repair costs are charged to expense as incurred.

The Company capitalizes costs incurred in developing or obtaining internal use software and these costs are reflected in property and equipment. Capitalized costs generally include hardware, software and payroll-related costs for employees who are directly associated with and who devote time to the development of internal use computer software. These costs are amortized using the straight-line method over three years. Costs such as maintenance and training are expensed as incurred. Total capitalized costs were $14.3 million and $16.4 million, net of depreciation, as of March 31, 2015 and 2014, respectively.

Deferred Debt Costs and Original Issue Discount

Debt issuance costs and original issue discount are amortized using the effective-interest method over the term of the related indebtedness, which ranges from four to seven years.

Deferred Rack Costs
 
Rack costs are capitalized and amortized as a reduction of circulation revenue, in accordance with the terms of the relevant agreements, usually three years. The Company performs periodic and timely reviews to determine if impairment charges are required due to market conditions, including store closings or store bankruptcies.

Other Long-Term Assets
 
Other long-term assets are comprised of the following at March 31st (in thousands):
 
2015
 
2014
Management fee receivable (see Note 9)
$
1,894

 
$
2,246

National distributor deposit
839

 
1,089

Other
460

 
506

Total other long-term assets
$
3,193

 
$
3,841


Other Amortizable Intangible Assets

Intangible assets consist primarily of tradenames, subscriber lists, customer relationships and other assets and are amortized on a straight-line basis over three to 27 years. The Company evaluates the amortization methods and remaining useful lives of intangible assets on a periodic basis to determine whether events and circumstances warrant a revision to the amortization method or remaining useful lives.

Goodwill and Indefinite-Lived Intangible Asset Impairments
 
The Company's goodwill and related indefinite-lived intangible assets are tested for impairment on an annual basis, on the first day of the fourth fiscal quarter or more often if an event occurs or circumstances change that would indicate a potential impairment exists. Impairment losses, if any, are reflected in operating income or loss in the consolidated financial statements. The Company's reporting units consist of each of its publications and other consolidated subsidiaries.


62


In assessing goodwill and intangible assets for impairment, the Company makes estimates of fair value that are based on its projection of revenues, operating costs and cash flows of each reporting unit, considering historical and anticipated future results and general economic and market conditions as well as the impact of planned business or operational strategies. The valuations employ a combination of income and market approaches to measure fair value. Changes in management's judgments and projections or assumptions used could result in a significantly different estimate of the fair value of the reporting units and could materially change the impairment charge related to goodwill and tradenames. For a detailed description of impairment charges, see Note 3, “Goodwill and Other Identified Intangible Assets.”

Long-Lived Asset Impairments

The Company reviews long-lived assets for impairment whenever an event occurs or circumstances change to indicate that the carrying amount of such assets may not be fully recoverable. When such factors, events or circumstances indicate that long-lived assets should be evaluated for possible impairment, the Company uses an estimate of undiscounted future cash flows over the remaining lives of the assets to measure recoverability. If the estimated undiscounted cash flows are less than the carrying value of the asset, the loss is measured as the amount by which the carrying value of the asset exceeds fair value computed on a discounted cash flow basis.

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities are comprised of the following at March 31st (in thousands):
 
2015
 
2014
Retail display pockets and allowances
$
12,153

 
$
5,539

Personnel related costs
8,315

 
6,242

Rack costs
6,290

 
2,062

Production costs
5,052

 
2,052

Distribution and circulation costs
2,966

 
3,268

Restructuring costs
4,605

 

Income and other taxes (1)
304

 
3,014

Other
4,330

 
4,351

Total accrued expenses and other liabilities
$
44,015

 
$
26,528


(1) Includes accruals of $0.6 million and $0.7 million for contingent liabilities for non-income related taxes at March 31, 2015 and 2014, respectively.

The Company incurred severance charges related to magazine closures, staff reorganizations and the implementation of certain management action plans for fiscal 2015, 2014 and 2013 of approximately $2.1 million, $3.0 million and $2.0 million, respectively. At March 31, 2015 and 2014, the Company had accrued severance charges of $0.7 million and $1.1 million, respectively, included in personnel related costs.

Contingent Liabilities

The Company has certain contingent liabilities that arise in the ordinary course of business. The Company accrues for contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. Reserves for contingent liabilities are reflected in the accompanying consolidated financial statements based on management's assessment, along with legal counsel, of the expected outcome of the contingencies. If the final outcome of the contingencies differs from that currently expected, it would result in a change to earnings in the period determined. See Note 11, “Commitments and Contingencies - Litigation,” for a description of litigation.

Revenue Recognition

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collection is reasonably assured. Revenues and associated accounts receivable are recorded net of provisions for estimated future returns, doubtful accounts and other allowances. Allowances for uncollectible receivables are estimated based upon a combination of write-off history, aging analysis and any specifically identified troubled accounts.


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Newsstand revenues are recognized based on the on-sale dates of magazines and are initially recorded based upon estimates of sales, net of brokerage, returns and estimates of newsstand related fees. Estimated returns are recorded based upon historical experience.

Print advertising revenues are recorded based on the on-sale dates of magazines when the advertisement appears in the magazine and are stated net of agency commissions and cash and sales discounts. Digital advertising revenues on the Company's websites are generally based on the sale of impression-based advertisements, which are recorded in the period in which the advertisements are served.

Other revenues, primarily from licensing opportunities and strategic partnerships for our branded products as well as marketing services performed for third parties by our distribution services group (DSI), through the date of divestiture, are recognized when the service is performed.

Deferred revenues result primarily from advance payments for subscriptions received from subscribers and is recognized on a straight-line basis, as issues are delivered, over the life of the subscription. Total deferred revenues are comprised of the following at March 31st (in thousands):
 
2015
 
2014
Subscriptions
$
25,184

 
$
27,303

Advertising
727

 
1,423

Other
823

 
1,293

Total deferred revenues
$
26,734

 
$
30,019


Concentrations

We rely on wholesalers for the retail distribution of our magazines. A small number of wholesalers are responsible for a substantial percentage of the wholesale magazine distribution business. As of March 31, 2015, single copy revenues consisted of copies distributed to retailers primarily by two major wholesalers.

During fiscal 2015, 2014 and 2013, The News Group accounted for approximately 36%, 29% and 29%, respectively, of our total operating revenues and The Hudson Group accounted for approximately 9%, 8% and 9%, respectively, of our total operating revenues. We have multi-year service arrangements with our major wholesalers, which provide incentives to maintain certain levels of service.

The decline in magazine sales at newsstands and other retail outlets have increased the financial instability of magazine wholesalers. Several of our wholesalers, including our former second-largest wholesaler, Source Interlink Companies ("Source"), ceased operation during 2014. Subject to the terms of our agreement with our national distributor, our exposure for bad debt related to Source was approximately $5.0 million to $7.0 million. We reserved approximately $6.9 million and as of March 31, 2015, approximately $6.6 million of the reserve has been utilized to reduce the outstanding receivables.

Product Placement Costs

Product placement costs include retail display allowance (“RDA”), which is a fee we pay on a quarterly basis to qualifying retailers as an incentive for selling our titles in their stores. Retail display payments (“RDP”) is an incentive fee, paid quarterly directly to retailers, based on the fixed amount of pockets our titles occupy on the display fixture. The Company pays either RDA or RDP to a particular retailer but not both for each title. Product placement costs are expensed and are recorded as a reduction to revenue as the issue relating to each specific cost is recognized as revenue.

Editorial Costs

External editorial costs relating to photos, artwork and text are expensed as the issue relating to each specific cost is recognized as revenue. Internal editorial costs are expensed as incurred.


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Recently Adopted Accounting Pronouncements

On April 1, 2014, the Company adopted ASU 2013-11, Income Taxes (Topic 740), Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists ("ASU 2013-11"). ASU 2013-11 requires the netting of unrecognized tax benefits against a deferred tax asset for a loss or other carryforward that would apply in settlement of uncertain tax positions. Under ASU 2013-11 unrecognized tax benefits are netted against all available same-jurisdiction loss or other tax carryforwards that would be utilized, rather than only against carryforwards that are created by the unrecognized tax benefits. The adoption of ASU 2013-11 did not have an impact on the Company's unaudited condensed consolidated financial position, results of operations or cash flows.

Recently Issued Accounting Pronouncements

In April 2014, the FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (Topic 205 and Topic 360) ("ASU 2014-08") which raises the threshold for disposals to qualify as discontinued operations. Under this new guidance, a discontinued operation is (1) a component of an entity or group of components that has been disposed of or is classified as held for sale that represents a strategic shift that has or will have a major effect on an entity's operations and financial results or (2) an acquired business that is classified as held for sale on the acquisition date. This guidance also requires expanded or new disclosures for discontinued operations, individually material disposals that do not meet the definition of a discontinued operation, an entity's continuing involvement with a discontinued operation following disposal, and retained equity method investments in a discontinued operation. ASU 2014-08 is effective for the Company on April 1, 2015 on a prospective basis, with early adoption permitted for disposals that have not been reported in financial statements previously issued. The Company does not expect the adoption of this guidance to have an impact on the consolidated financial position and results of operations.

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties About an Entity's Ability to Continue as a Going Concern (Topic 205) ("ASU 2014-15") which establishes management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and setting rules for how this information should be disclosed in the financial statements. This guidance is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2016, with early adoption permitted. The Company does not expect the adoption of this guidance to have an impact on the consolidated financial position and results of operations.

In January 2015, the FASB issued ASU No. 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20) ("ASU 2015-01") which simplifies the income statement presentation by eliminating the concept of extraordinary items. The guidance is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2015, with early adoption permitted. The Company does not expect the adoption of this guidance to have an impact on the consolidated financial position and results of operations.

In February 2015, the FASB issued ASU 2015-02, Consolidations, Amendments to the Consolidation Analysis (Topic 810) ("ASU 2015-02"), which changes the identification of variable interests, the variable interest characteristic for a limited partnership or similar entity and the primary beneficiary determination all of which are intended to improve the consolidation guidance as well as increase transparency and consistency of financial reporting. The guidance is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2015, with early adoption permitted. The Company does not expect the adoption of this guidance to have an impact on the consolidated financial position and results of operations.

In April 2015, the FASB issued a proposal for a one-year deferral of the effective date for ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). Under this proposal, the standard would be effective for public entities for annual reporting periods beginning after December 15, 2017 and interim periods therein. ASU 2014-09 supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. As a result of the one-year deferral, ASU 2014-09 will now be effective for the Company on April 1, 2018 using one of two retrospective application methods. The Company has not determined the potential effects on the consolidated financial position, results of operations or cash flows.


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In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest, Simplifying the Presentation of Debt Issuance Costs (Subtopic 835-30) ("ASU 2015-03") which requires the presentation of debt issuance costs to be reflected as a reduction from the face amount of the related debt, with amortization recorded as interest expense, rather than recording as a deferred asset. The guidance is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2015, and requires retrospective application. The Company does not expect the adoption of this guidance to have a significant impact on the consolidated financial position and results of operations, although it will change the financial statement classification of the deferred debt cost. As of March 31, 2015 and 2014, the Company had $6.4 million and $8.1 million of net deferred debt costs, respectively, included on the consolidated balance sheets. Under the new guidance, the net deferred debt costs would offset the carrying amount of the respective debt on the consolidated balance sheets.

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued accounting pronouncements that are not yet effective will not have a material impact on our financial position, results of operations or cash flows upon adoption.

Note 3 - Goodwill and Other Identified Intangible Assets

Goodwill

As of March 31, 2015 and 2014, the Company had goodwill with a carrying value of $154.0 million and $162.9 million, respectively. Goodwill decreased approximately $8.9 million during fiscal 2015 due to impairment charges. The gross carrying amount and accumulated impairment losses of goodwill, as of March 31, 2015 and 2014, by reportable segment are as follows (in thousands):

 
Celebrity Brands
Men's Active Lifestyle Group
Corporate and Other
Total
Goodwill
$
428,518

$
112,296

$
18,190

$
559,004

Accumulated impairment losses
(304,595
)
(80,446
)
(11,075
)
(396,116
)
Balance, March 31, 2014
123,923

31,850

7,115

162,888

Impairment

(8,890
)

(8,890
)
Goodwill
428,518

112,296

18,190

559,004

Accumulated impairment losses
(304,595
)
(89,336
)
(11,075
)
(405,006
)
Balance, March 31, 2015
$
123,923

$
22,960

$
7,115

$
153,998


Other Identified Intangible Assets

Other identified intangible assets are comprised of the following (in thousands):

 
Range of lives
(in years)
March 31, 2015
March 31, 2014
Intangible assets subject to amortization:
 
 
 
     Tradenames
15 - 27
$
46,166

$
10,610

     Subscriber lists
3 - 15
32,702

32,702

     Customer relationships
5 - 10
2,300

2,300

     Other intangible assets
3
7,620

6,067

Total gross intangible assets subject to amortization
 
88,788

51,679

     Accumulated amortization
 
(44,970
)
(40,675
)
Total net intangible assets subject to amortization
 
43,818

11,004

Intangible assets not subject to amortization
Indefinite
180,363

224,431

Total other identified intangible assets, net
 
$
224,181

$
235,435



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Effective October 1, 2014, certain tradenames with a carrying value totaling approximately $35.6 million that were previously assigned indefinite lives have been assigned finite lives of 15 years. During the six months ended March 31, 2015, the amortization expense of these tradenames totaled approximately $1.2 million.

Intangible assets not subject to amortization decreased approximately $44.1 million during fiscal 2015 due to the reclassification of approximately $35.6 million of tradenames to finite lived and approximately $8.5 million due to impairment charges.

Amortization expense of intangible assets was $4.3 million, $4.4 million and $3.4 million during fiscal 2015, 2014 and 2013, respectively. Based on the carrying value of identified intangible assets recorded at March 31, 2015, and assuming no subsequent impairment of the underlying assets, the amortization expense is expected to be as follows (in thousands):

Fiscal Year
 
Amortization Expense
2016
 
$
3,665

2017
 
2,616

2018
 
1,706

2019
 
1,509

2020
 
1,392

  Thereafter
 
32,930

 
 
$
43,818


Impairments

During an evaluation of goodwill and other identified intangible assets at September 30, 2014, the Company determined that indicators were present in certain reporting units which would suggest the fair value of the reporting unit may have declined below the carrying value. This decline was primarily due to the continuing softness in the consumer magazine sector, which impacts consumer and advertising spending, including further declines in certain advertising markets, resulting in lowered future cash flow projections.

As a result, an interim impairment test of goodwill and other indefinite lived intangible assets was performed as of September 30, 2014 for certain reporting units in accordance with FASB Accounting Standards Codification (“ASC”) Topic No. 350, “Goodwill and Other Intangible Assets” (“ASC 350”). Impairment testing for goodwill is a two-step process. The first step compares the fair value of the reporting unit to its carrying value, including goodwill. If the carrying value of the reporting unit exceeds its fair value, the second step of the test is performed to measure the amount of the impairment charge, if any. The second step compares the implied fair value of the reporting unit's goodwill with the carrying value of that goodwill and an impairment charge is recorded for the difference. Impairment testing for indefinite lived intangible assets, consisting of tradenames, compares the fair value of the tradename to the carrying value and an impairment charge is recorded for any excess carrying value over fair value.

The evaluation resulted in the carrying value of goodwill and tradenames for certain reporting units to exceed the estimated fair value. As a result, the Company recorded a pre-tax non-cash impairment charge of $8.9 million and $8.5 million to reduce the carrying value of goodwill and tradenames, respectively, during the quarter ended September 30, 2014.

Impairment Charge Assumptions

The fair value of the reporting unit's goodwill and tradenames was based on the Company's projections of revenues, operating costs and cash flows of each reporting unit, considering historical and anticipated future results and general economic and market conditions as well as the impact of planned business and operational strategies. The valuations employ a combination of income and market approaches to measure fair value. The key assumptions used to determine fair value of the reporting unit's goodwill and tradenames as of September 30, 2014 were:

a)
expected cash flow periods of five years;
b)
terminal values based upon terminal growth rates ranging from 2% to 3%;
c)
implied multiples used in the business enterprise value income and market approaches ranging from 3.9 to 5.0; and
d)
discount rates ranging from 14% to 15%, which were based on the Company's best estimate of the weighted average cost of capital adjusted for risks associated with the reporting unit.


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Management believes the discount rates used is consistent with the risks inherent in the Company's current business model and with industry discount rates. Changes in management's judgments and projections or assumptions used could result in a significantly different estimate of the fair value of the reporting units and could materially change the impairment charge related to goodwill and tradenames.

Note 4 - Revolving Credit Facility

In December 2010, we entered into a revolving credit facility maturing in December 2015 (the "2010 Revolving Credit Facility"). The 2010 Revolving Credit Facility provided for borrowing up to $40.0 million less outstanding letters of credit. As further discussed below, in February 2015, we amended and restated the 2010 Revolving Credit Facility (the "Amended and Restated Revolving Credit Facility") to, among other things, extend the maturity date to December 2016, reduce the borrowing capacity from $40.0 million to $35.0 million and amend the first lien leverage ratio and certain other covenants and provisions.

The Company has the option to pay interest based on (i) a floating base rate option equal to the greatest of (x) the prime rate in effect on such day; (y) the federal funds effective rate in effect on such day plus ½ of 1%; and (z) one month LIBOR (but no less than 2%) plus 1%, or (ii) LIBOR, in each case, plus a margin. The interest rate under the Amended and Restated Revolving Credit Facility has ranged from 8.00% to 8.25% during the fiscal year ended March 31, 2015 and 2014. In addition, the Company is required to pay a commitment fee ranging from 0.50% to 0.75% on the unused portion of the revolving commitment. Commitment fees paid during fiscal 2015, 2014 and 2013 were insignificant.

During fiscal 2015, the Company borrowed $62.8 million and repaid $77.1 million under the Amended and Restated Revolving Credit Facility. At March 31, 2015, the Company has available borrowing capacity of $15.9 million after considering the $14.7 million outstanding balance and the $4.4 million outstanding letter of credit. The outstanding balance at March 31, 2015 of $14.7 million is included in non-current liabilities, as the maturity date of the Amended and Restated Revolving Credit Facility is December 2016.

The indebtedness under the 2010 Revolving Credit Facility and the Amended and Restated Revolving Credit Facility is guaranteed by certain of the domestic subsidiaries of the Company and is secured by liens on substantially all the assets of the Company and certain of its domestic subsidiaries. In addition, the Company’s obligations are secured by a pledge of all the issued and outstanding shares of, or other equity interests in, certain of the Company's existing or subsequently acquired or organized domestic subsidiaries and a percentage of the capital stock of, or other equity interests in, certain of its existing or subsequently acquired or organized foreign subsidiaries.

2010 Revolving Credit Facility Amendments

In August 2014, the Company, JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”), and the lenders from time to time party to the 2010 Revolving Credit Facility, as amended, restated, modified or supplemented from time to time, entered into Amendment No. 3 (the “Third Credit Agreement Amendment”) to the 2010 Revolving Credit Facility with the lenders (the “Consenting Lenders”) constituting the Required Lenders (as defined in the Credit Agreement).

Pursuant to the Third Credit Agreement Amendment and subject to the Credit Parties’ (as defined in the 2010 Revolving Credit Facility) compliance with the requirements set forth therein, the Consenting Lenders agreed to (i) waive until the earlier of (x) August 15, 2014 and (y) immediately prior to the consummation of the Merger, any potential Default or Event of Default (each, as defined in the 2010 Revolving Credit Facility) arising from the failure to furnish to the Administrative Agent (A) the financial statements, reports and other documents as required under Section 5.01(a) of the 2010 Revolving Credit Facility with respect to the fiscal year of the Company ended March 31, 2014 and (B) the related deliverables required under Sections 5.01(c) and 5.03(b) of the 2010 Revolving Credit Facility, (ii) permit the transactions contemplated by the Merger Agreement and the Note Purchase Agreement, including amending the definition of “Change of Control” and permitting the issuance of the Additional Notes pursuant to the Second Lien PIK Notes Indenture (each as defined), (iii) consent to the sale of certain assets of the Loan Parties (as defined in the 2010 Revolving Credit Facility), (iv) restrict any payment or distribution in respect of the First Lien Notes (as defined) on or prior to June 15, 2015, subject to certain exceptions, including the payment of regularly scheduled interest and any mandatory prepayments and mandatory offers to purchase under the First Lien Notes, and (v) amend the maximum first lien leverage ratio covenant to be equal to or less than 5.25 to 1.00 from April 1, 2014 through and including the quarter ending June 30, 2015. From July 1, 2015 through December 31, 2015, the maturity date of the 2010 Revolving Credit Facility, the first lien leverage ratio must be equal to or less than 4.50 to 1.00, the ratio in effect prior to the amendment.

In August 2014, the Company received a waiver under the 2010 Revolving Credit Facility to provide additional time to file the Quarterly Report for the quarterly period ended June 30, 2014, with the SEC and to make it available to the 2010 Revolving Credit Facility lenders.


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In January 2015, the Company, the Administrative Agent and the lenders from time to time party to the 2010 Revolving Credit Facility, as amended, restated, modified or supplemented from time to time, entered into Amendment No. 4 (the “Fourth Credit Agreement Amendment”) to the 2010 Revolving Credit Facility with the lenders constituting the Required Lenders (as defined in the Credit Agreement) to, among other things, modify the definition of "Permitted Refinancing Indebtedness” to, among other things, permit the transactions contemplated by the exchange of certain senior secured notes as further described in Note 5, "Senior Secured Notes."

In January 2015, the Company, the Administrative Agent and the lenders from time to time party to the 2010 Revolving Credit Facility, as amended, restated, modified or supplemented from time to time, entered into Amendment No. 5 (the “Fifth Credit Agreement Amendment”) to the 2010 Revolving Credit Facility with the lenders constituting the Required Lenders (as defined in the Credit Agreement) to, among other things, permit the transactions contemplated by the sale of our Shape, Fit Pregnancy and Natural Health publications, which comprised our Women's Active Lifestyle segment, as further described in Note 10, "Dispositions and Acquisitions."

In February 2015, the Company received a waiver under the 2010 Revolving Credit Facility to provide additional time to file the Quarterly Report for the quarterly period ended December 31, 2014, with the SEC and to make it available to the 2010 Revolving Credit Facility lenders.

In February 2015, the Company, the Administrative Agent and the lenders from time to time party to the 2010 Revolving Credit Facility, as amended, restated, modified or supplemented from time to time, entered into the Amended and Restated Revolving Credit Facility with the lenders constituting the Required Lenders (as defined in the Credit Agreement) to, among other things, extend the maturity date to December 2016, reduce the borrowing capacity from $40.0 million to $35.0 million, amend the maximum first lien leverage ratio covenant to be equal to or less than 4.75 to 1.00 for the quarter ending March 31, 2015 and 4.50 to 1.00 from April 1, 2015 through December 2016, the maturity date of the Amended and Restated Revolving Credit Facility. In addition to the first lien leverage ratio, the Amended and Restated Revolving Credit Facility includes a consolidated leverage ratio and an interest coverage ratio. The consolidated leverage ratio covenant must be equal to or less than 5.50 to 1.00 for the quarter ended March 31, 2015, 4.75 to 1.00 from April 1, 2015 through September 30, 2015 and 5.50 to 1.00 from October 1, 2015 through December 2016. The interest coverage ratio must be equal to or greater than 1.10 to 1.00 for the quarter ended March 31, 2015 and 1.50 to 1.00 from April 1, 2015 through December 2016.

Covenants

The Amended and Restated Revolving Credit Facility include certain representations and warranties, conditions precedent, affirmative covenants, negative covenants and events of default. The negative covenants in the Amended and Restated Revolving Credit Facility includes financial maintenance covenants comprised of a first lien leverage ratio, a consolidated leverage ratio and an interest coverage ratio. The Amended and Restated Revolving Credit Facility also contain certain covenants that, subject to certain exceptions, restrict paying dividends, incurring additional indebtedness, creating liens, making acquisitions or other investments, entering into certain mergers or consolidations and selling or otherwise disposing of assets. With respect to the dividend restrictions, the Amended and Restated Revolving Credit Facility includes a cap on the total amount of cash available for distribution to our common stockholders.

As of March 31, 2015, the Company was in compliance with its covenants under the Amended and Restated Revolving Credit Facility.

Although there can be no assurances, management believes that, based on current projections (including projected borrowings and repayments under the Amended and Restated Revolving Credit Facility), its operating results for fiscal 2016 will be sufficient to satisfy the financial covenants under the Amended and Restated Revolving Credit Facility. The Company’s ability to satisfy the financial covenants is dependent on the business performing in accordance with its projections.  If the performance of the Company’s business deviates significantly from its projections, the Company may not be able to satisfy such financial covenants.  The Company's projections are subject to a number of factors, many of which are events beyond its control, which could cause its actual results to differ materially from its projections. If the Company does not comply with its financial covenants, the Company will be in default under the Amended and Restated Revolving Credit Facility.


69


Note 5 - Senior Secured Notes

Our senior secured notes are comprised the first lien Notes, the second lien notes, the second lien PIK notes and the new second lien notes and are collectively referred to herein as the "Senior Secured Notes" and consisted of the following at March 31st (in thousands):

 
 
2015
 
2014
   First Lien Notes
 
$
275,175

 
$
362,675

   Second Lien Notes
 
2,198

 
10,602

   Second Lien PIK Notes
 

 
96,200

   New Second Lien Notes
 
39,024

 

   Unamortized discount
 
(6,828
)
 

Total debt obligations
 
309,569

 
469,477

Less: current portion of long-term debt
 

 

Noncurrent debt obligations
 
$
309,569

 
$
469,477


The future maturities of the Senior Secured Notes as of March 31st are as follows (in thousands):

Fiscal Year
 
Amount
2016
 
$

2017
 

2018
 
275,175

2019
 
2,198

2020
 

Thereafter
 
39,024

Total future maturities
 
316,397

Unamortized discount
 
(6,828
)
Total debt obligations
 
$
309,569


As of March 31, 2015, future interest payments on our Senior Secured Notes for the next five years and thereafter until maturity in fiscal 2021 is expected to be as following (in thousands):

Fiscal Year
 
Amount
2016
 
$
36,068

2017
 
36,990

2018
 
26,607

2019
 
4,195

2020
 
4,303

Thereafter
 
1,285

Total future payments
 
$
109,448


First Lien Notes

In December 2010, we issued $385.0 million aggregate principal amount of senior secured notes, which bear interest at a rate of 11.5% per annum and mature in December 2017 (the "First Lien Notes"). Interest on the First Lien Notes is payable semi-annually on June 15th and December 15th of each year and is computed on the basis of a 360-day year comprised of twelve 30 day months.


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During fiscal 2012, the Company redeemed $20.0 million in aggregate principal amount of First Lien Notes. During fiscal 2014, the Company repurchased approximately $2.3 million in aggregate principal amount of First Lien Notes. During fiscal 2015, the Company repurchased $55.5 million in aggregate principal amount of First Lien Notes at a price equal to 103.9% of the aggregate principal amount thereof, plus accrued and unpaid interest in the open market. In January 2015, the Company exchanged approximately $32.0 million in aggregate principal amount of First Lien Notes, plus accrued and unpaid interest for approximately $39.0 million aggregate principal amount of new second lien senior secured notes, which bear interest at a rate of 7.0% per annum and mature in July 2020 (the "New Second Lien Notes"), pursuant to an exchange agreement (the "New Second Lien Notes Exchange Agreement"), as further described below.

Subsequent to March 31, 2015, the Company repurchased approximately $2.0 million in aggregate principal amount of First Lien Notes, at a price equal to 105.9% of the aggregate principal amount thereof, plus accrued and unpaid interest in the open market. After giving effect to this repurchase approximately $273.2 million aggregate principal amount of First Lien Notes remain outstanding.

The First Lien Notes are guaranteed on a first lien senior secured basis by the same subsidiaries of the Company that guarantee the Amended and Restated Revolving Credit Facility. The First Lien Notes and the guarantees thereof are secured by a first-priority lien on substantially all our assets (subject to certain permitted liens and exceptions), pari passu with the liens granted under our Amended and Restated Revolving Credit Facility, provided that in the event of a foreclosure on the collateral or insolvency proceedings, obligations under our Amended and Restated Revolving Credit Facility will be repaid in full with proceeds from the collateral prior to the obligations under the First Lien Notes.

Under the First Lien Notes Indenture (as defined below), the Company has the option to redeem the First Lien Notes on or after December 15, 2014, in whole or in part, at the redemption prices set forth below, plus accrued and unpaid interest through the redemption date, if redeemed during the 12-month period beginning on December 15th of each of the years indicated below:

Year
 
Percentage
2014
 
105.75%
2015
 
102.875%
2016 and thereafter
 
100%
Second Lien Notes

In December 2010, we issued $104.9 million aggregate principal amounts of senior secured notes, which bear interest at a rate of 13.5% per annum and mature in June 2018 (the "Second Lien Notes"). Interest on the Second Lien Notes is payable semi-annually on June 15th and December 15th of each year and is computed on the basis of a 360-day year comprised of twelve 30 day months.

In October 2013, we exchanged approximately $94.3 million aggregate principal amount of Second Lien Notes for an equal aggregate principal amount of new second lien senior secured notes, which bear interest at a rate of 10.0% per annum, are payable in kind, and mature in June 2018 (the “Second Lien PIK Notes”), pursuant to an exchange agreement (the “Second Lien PIK Notes Exchange Agreement”), as further described below.

In September 2014, pursuant to the Debt for Equity Exchange Agreement with the Parent and the Investors, the Investors exchanged approximately $7.8 million aggregate principal amount of Second Lien Notes, plus accrued and unpaid interest, for equity interest in the Parent. During fiscal 2015, the Company repurchased approximately $0.6 million in aggregate principal amount of Second Lien Notes at a price equal to 108.0% of the aggregate principal amount thereof, plus accrued and unpaid interest in the open market.

The Second Lien Notes are guaranteed on a second lien senior secured basis by the same subsidiaries of the Company that guarantee our Amended and Restated Revolving Credit Facility and the First Lien Notes. The Second Lien Notes and the guarantees thereof are secured by a second-priority lien on substantially all our assets (subject to certain permitted liens and exceptions).


71


Under the Second Lien Notes Indenture (as defined below), the Company has the option to redeem the Second Lien Notes on or after December 15, 2014, in whole or in part, at the redemption prices set forth below, plus accrued and unpaid interest through the redemption date, if redeemed during the 12-month period beginning on December 15th of each of the years indicated below:

Year
 
Percentage
2014
 
106.75%
2015
 
103.375%
2016 and thereafter
 
100%

Second Lien PIK Notes

In October 2013, we issued approximately $94.3 million aggregate principal amount of Second Lien PIK Notes in exchange for an equal aggregate principal amount of Second Lien Notes pursuant to the Second Lien PIK Notes Exchange Agreement, as described above. The Second Lien PIK Notes were issued under a new indenture (the “Second Lien PIK Notes Indenture”), by and among American Media, Inc., certain of its subsidiaries listed as guarantors thereto (the "Guarantors") and Wilmington Trust, National Association, as trustee (the "Trustee").

The Second Lien PIK Notes were payable in kind at a rate of 10% per annum until the earliest of: (a) December 15, 2016, (b) the closing of a refinancing of the First Lien Notes or (c) upon the occurrence of certain specified events of default relating to the application of the cash interest savings and the right of first offer (any such date being the "Cash Interest Rate Conversion Date"), at which point the interest payable on the then outstanding aggregate principal amount of Second Lien PIK Notes will be payable, in cash, at an interest rate of 13.5% per annum until the June 2018 maturity date.

Subject to certain exceptions, the cash interest savings (as defined in the Second Lien PIK Notes Indenture) resulting from the exchange of the Second Lien Notes must be used by the Company to repurchase First Lien Notes until the Cash Interest Rate Conversion Date. The participating holders have a right of first offer to sell any of their First Lien Notes to the Company before the Company makes repurchases of First Lien Notes from any other holders of the First Lien Notes, including those purchases pursuant to open market repurchases. In August 2014, the Company and the Guarantors entered into an amendment to the Second Lien PIK Notes Exchange Agreement (the “Second Lien PIK Notes Exchange Agreement Amendment”) which provided that the Company was not required to apply the cash interest savings to repurchase outstanding First Lien Notes for the semi-annual interest periods ending on June 15, 2014 and December 15, 2014.

The December 15, 2013 and the June 15, 2014 interest payments-in-kind on the Second Lien PIK Notes totaled $1.9 million and $4.8 million, respectively, and were recorded as increases to the aggregate principal amount of Second Lien PIK Notes.

In connection with the Merger Agreement, in August 2014, the Company and certain of its subsidiaries entered into the Note Purchase Agreement with the Investors and the Company issued approximately $12.3 million in aggregate principal amount of additional Second Lien PIK Notes (the "Additional Notes"). The Additional Notes were issued under the Second Lien PIK Notes Indenture and were assigned the same CUSIP number as the outstanding Second Lien PIK Notes. The Additional Notes were issued through a private offering exempt from the registration requirements of the Securities Act of 1933, as amended.

In September 2014, pursuant to the Debt for Equity Exchange Agreement with the Parent and the Investors, the Investors exchanged approximately $113.3 million aggregate principal amount of Second Lien PIK Notes, plus accrued and unpaid interest, which represented all of the outstanding Second Lien PIK Notes, for equity interests in the Parent. Upon the cancellation of all outstanding Second Lien PIK Notes, the collateral agreement securing the Second Lien PIK Notes was terminated and the obligations of the Company under the Second Lien PIK Notes Indenture were satisfied in full and the discharge thereof was acknowledged by the Trustee.


72


New Second Lien Notes

In January 2015, we issued approximately $39.0 million aggregate principal amount of New Second Lien Notes, which bear interest at a rate of 7.0% per annum and mature in July 2020. Interest on the New Second Lien Notes is payable semi-annually on July 15th and January 15th of each year and is computed on the basis of a 360-day year comprised of twelve 30 day months. As described above, the New Second Lien Notes were issued in exchange for $32.0 million aggregate principal amount of First Lien Notes pursuant to the New Second Lien Notes Exchange Agreement. The New Second Lien Notes were issued under a new indenture (the “New Second Lien Notes Indenture”), by and among American Media, Inc., the Guarantors and the Trustee. The New Second Lien Notes were issued through a private offering exempt from the registration requirements of the Securities Act of 1933, as amended.

The New Second Lien Notes are guaranteed on a second lien senior secured basis by the same subsidiaries of the Company that guarantee our Amended and Restated Revolving Credit Facility, the First Lien Notes and the Second Lien Notes. The New Second Lien Notes and the guarantees thereof are secured by a second-priority lien on substantially all our assets (subject to certain permitted liens and exceptions).

Under the New Second Lien Notes Indenture (as defined below), the Company has the option to redeem the New Second Lien Notes at any time prior to January 15, 2018 at a redemption price equal to 100% of the principal amount, plus a “make-whole” premium and accrued and unpaid interest through the redemption date. At any time prior to January 15, 2018, the Company may redeem up to 35% of the New Second Lien Notes from the net cash proceeds of one or more qualified equity offerings at a redemption price of 107% of the principal amount, plus accrued and unpaid interest through the redemption date, provided that at least 65% of the aggregate principal amount of the New Second Lien Notes remains outstanding after the redemption. The Company has the option to redeem the New Second Lien Notes on or after January 15, 2018, in whole or in part, at the redemption prices set forth below, plus accrued and unpaid interest through the redemption date, if redeemed during the 12-month period beginning on January 15th of each of the years indicated below:

Year
 
Percentage
2018
 
107%
2019
 
103.5%
2020 and thereafter
 
100%

Supplemental Indentures

In August 2014, the Company received consents from the holders of (a) $218.2 million principal amount of the outstanding First Lien Notes to amend the indenture dated as of December 1, 2010 (as such agreement may be amended, restated or supplemented, the “First Lien Notes Indenture”), among the Company, the Guarantors and the Trustee, (b) $7.8 million principal amount of the outstanding Second Lien Notes to amend the indenture dated as of December 22, 2010 (as such agreement may be amended, restated or supplemented, the “Second Lien Notes Indenture” and, together with the First Lien Notes Indenture and the Second Lien PIK Notes Indenture, the “Indentures”), among the Company, the Guarantors and the Trustee and (c) $101.0 million principal amount of the outstanding Second Lien PIK Notes to amend the Second Lien PIK Notes Indenture, which in each case represented the requisite consents from holders of at least a majority of the aggregate principal amount of the Senior Secured Notes then outstanding.

As a result of receiving the requisite consents, in August 2014, the Company and the Trustee entered into (a) the Fourth Supplemental Indenture (the “First Lien Notes Supplemental Indenture”) to the First Lien Notes Indenture, (b) the Third Supplemental Indenture (the “Second Lien Notes Supplemental Indenture”) to the Second Lien Notes Indenture and (c) the First Supplemental Indenture (the “Second Lien PIK Notes Supplemental Indenture” and, together with the First Lien Notes Supplemental Indenture and the Second Lien Notes Supplemental Indenture, the “Supplemental Indentures”) to the Second Lien PIK Notes Indenture.

The Supplemental Indentures amended the Indentures to (a) permit the transactions contemplated by the Merger Agreement and the Note Purchase Agreement, including amending the definition of “Change of Control” and permitting the issuance of the Additional Notes pursuant to the Second Lien PIK Notes Indenture; and (b) in the case of the Second Lien PIK Notes Supplemental Indenture only, eliminate the Company’s obligation to apply cash interest savings (as defined in the Second Lien PIK Notes Indenture) to repurchase outstanding First Lien Notes for the semi-annual interest periods ending on June 15, 2014 and December 15, 2014 (collectively, the “Amendments”). Pursuant to the terms of the Supplemental Indentures, the Supplemental Indentures became effective, and the Amendments became operative, immediately upon execution of the Supplemental Indentures.


73


In January 2015, the Company entered into a supplemental indenture (the “2015 Supplemental Indenture”) by and between the Company and Wilmington Trust, National Association, as successor by merger to Wilmington Trust FSB, as trustee and collateral agent (collectively, the “Existing Second Lien Trustee”), to an indenture, dated as of December 22, 2010, by and among the Company, the guarantors party thereto and the Existing Second Lien Trustee (as amended, supplemented or otherwise modified through the date of amendment, the “Existing Second Lien Indenture”). The 2015 Supplemental Indenture contemplates, among other things, the New Second Lien Exchange Agreement.

The Indentures governing the Senior Secured Notes contain certain affirmative covenants, negative covenants and events of default. For example, the Indentures governing the Senior Secured Notes contain covenants that limit our ability and that of our restricted subsidiaries, subject to important exceptions and qualifications, to: borrow money; guarantee other indebtedness; use assets as security in other transactions; pay dividends on stock, redeem stock or redeem subordinated debt; make investments; enter into agreements that restrict the payment of dividends by subsidiaries; sell assets; enter into affiliate transactions; sell capital stock of subsidiaries; enter into new lines of business; and merge or consolidate. In addition, the Indentures governing the Senior Secured Notes impose certain requirements as to future subsidiary guarantors. As of March 31, 2015, the Company was in compliance with all of the covenants under the indentures governing the Senior Secured Notes.

Registration Rights Agreement

In connection with the issuance of the First Lien Notes, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with the holders and the guarantors of the First Lien Notes, which, among other things, required the Company to file an exchange offer registration statement with the Securities and Exchange Commission (the “SEC”). Pursuant to the Registration Rights Agreement, the Company was required to offer to exchange (the "Exchange Offer") up to $365.0 million of the 11.5% senior notes due December 2017 (the “Exchange Notes”), which were registered under the Securities Act of 1933, as amended, for up to $365.0 million of our First Lien Notes, which we issued in December 2010. The terms of the Exchange Notes are identical to the terms of the First Lien Notes, except that the transfer restrictions, registration rights and additional interest provisions relating to the First Lien Notes do not apply to the Exchange Notes.

The Company was required to commence the Exchange Offer once the exchange offer registration statement was declared effective by the SEC and use commercially reasonable efforts to complete the Exchange Offer no later than February 24, 2012. Since the Exchange Offer was not completed until November 20, 2012, a registration default occurred and the Company incurred approximately $1.3 million in additional interest on the First Lien Notes during the registration default period. The registration default did not impact our compliance with the indentures governing the Senior Secured Notes or the 2010 Revolving Credit Facility.

Note 6 - Fair Value of Financial Instruments

FASB ASC Topic 825, Financial Instruments requires the Company to disclose the fair value of financial instruments that are not measured at fair value in the accompanying financial statements. The fair value of the Company’s financial instruments has been estimated primarily by using inputs, other than quoted prices in active markets, that are observable either directly or indirectly. However, the use of different market assumptions or methods of valuation could result in different fair values.

FASB ASC Topic 820, Fair Value Measurements and Disclosures ("ASC 820"), established a three-tier fair value hierarchy, which prioritizes the use of inputs used in measuring fair value as follows:

Level 1    Observable inputs such as quoted prices in active markets for identical assets and liabilities;
Level 2    Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3    Unobservable inputs in which there is little or no market data, which requires the reporting entity to develop its own assumptions.

The estimated fair value of the Company’s financial instruments is as follows (in thousands):
 
 
 
March 31, 2015
 
March 31, 2014
 
 
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
First Lien Notes
Level 2
 
$
275,175

 
$
282,742

 
$
362,675

 
$
397,129

Second Lien Notes
Level 2
 
2,198

 
2,337

 
10,602

 
10,840

Second Lien PIK Notes
Level 2
 

 

 
96,200

 
95,178

New Second Lien Notes
Level 2
 
32,196

 
33,655

 

 



74


The fair value of the First Lien Notes, the Second Lien Notes, the Second Lien PIK Notes and the New Second Lien Notes is estimated using quoted market prices for the same or similar issues.

As of March 31, 2015 and 2014, the Company did not have financial assets or liabilities that would require measurement on a recurring basis, based on the guidance in ASC 820. The Company's financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, and the Amended and Restated Revolving Credit Facility. The carrying amount of these accounts approximates fair value.

Assets measured at fair value on a nonrecurring basis

The Company's non-financial assets, such as goodwill, intangible assets and property and equipment, are measured at fair value when there is an indicator of impairment and are recorded at fair value only when an impairment charge is recognized. During an evaluation of goodwill and other identified intangible assets at September 30, 2014, the carrying value of goodwill and tradenames for certain reporting units exceeded fair value. As a result, the Company recorded an impairment charge that incorporates fair value measurements based on Level 3 inputs. See Note 3 "Goodwill and Other Identified Intangible Assets," for further discussion on measuring the Company's non-financial assets, specifically goodwill and tradenames.

Note 7 - Income Taxes

The Company files a consolidated Federal income tax return. The provision (benefit) for income taxes from continuing operations consists of the following at March 31st (in thousands):

 
2015
 
2014
 
2013
Current:
 
 
 
 
 
Federal
$

 
$
(160
)
 
$
(26
)
State
88

 
11

 
(296
)
Foreign
50

 
451

 
536

Total current provision
138

 
302

 
214

Deferred:
 
 
 
 
 
Federal
(13,907
)
 
24,252

 
(6,315
)
State
(1,894
)
 
6,138

 
(257
)
Foreign
(26
)
 
(33
)
 
(78
)
Total deferred provision (benefit)
(15,827
)
 
30,357

 
(6,650
)
Provision (benefit) for income taxes
$
(15,689
)
 
$
30,659

 
$
(6,436
)

Income tax provision (benefit) attributable to income from continuing operations was $(15.7) million, $30.7 million and $(6.4) million for fiscal 2015, 2014 and 2013, respectively, and differed from the amounts computed by applying the statutory U.S. federal income tax rate of 35% to pretax income from continuing operations as a result of the following at March 31st (in thousands):

 
2015
 
2014
 
2013
U.S expected tax (benefit) provision
$
(19,926
)
 
$
(9,209
)
 
$
(21,853
)
State income taxes, net of federal benefit
(1,504
)
 
(755
)
 
(802
)
Meals and entertainment
270

 
271

 
236

Goodwill impairment
1,237

 

 
14,980

Valuation allowance on deferred tax assets
2,555

 
40,260

 

Debt restructuring
1,277

 

 

Other, net
402

 
92

 
1,003

Provision (benefit) for income taxes
$
(15,689
)
 
$
30,659

 
$
(6,436
)


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The tax effected net deferred tax assets and liabilities are comprised of the following at March 31st (in thousands):
 
2015
 
2014
Deferred Income Tax Assets, Current
 
 
 
Reserves and accruals
$
6,744

 
$
3,437

Revenue recognition

 
52

Other current deferred tax assets
448

 
1,210

Gross deferred income tax assets, current
7,192

 
4,699

Valuation allowance
(3,738
)
 
(3,455
)
Deferred income tax assets, current
3,454

 
1,244

Deferred Income Tax Liabilities, Current
 
 
 
Circulation expenses
(807
)
 
(1,274
)
Other current deferred tax liabilities
(958
)
 
(1,898
)
Deferred income tax liabilities, current
(1,765
)
 
(3,172
)
Net deferred income tax assets (liabilities), current
$
1,689

 
$
(1,928
)
 
2015
 
2014
Deferred Income Tax Assets, Non-Current
 
 
 
Net operating losses
$
38,215

 
$
42,678

Deferred debt costs
273

 
1,954

Goodwill and other intangibles
980

 
1,727

Other non-current deferred tax assets
4,745

 
3,414

Gross deferred income tax assets, non-current
44,213

 
49,773

Valuation allowance
(23,401
)
 
(36,806
)
Deferred income tax assets, non-current
20,812

 
12,967

Deferred Income Tax Liabilities, Non-Current
 
 
 
Goodwill and other intangibles
(82,670
)
 
(86,994
)
Circulation expenses
(2,617
)
 
(2,354
)
Property and equipment
(3,580
)
 
(3,076
)
Other non-current deferred tax liabilities
(2,692
)
 
(3,595
)
Deferred income tax liabilities, non-current
(91,559
)
 
(96,019
)
Net deferred income tax liabilities, non-current
$
(70,747
)
 
$
(83,052
)

The net deferred income tax assets, current of $1.7 million as of March 31, 2015, are included in prepaid expenses and other current assets and the net deferred income tax liabilities, current of $1.9 million as of March 31, 2014, are included in accrued expenses and other liabilities in the accompanying balance sheets. The net deferred income tax liabilities, non-current of $70.7 million and $83.1 million as of March 31, 2015 and 2014, respectively, are included in deferred income taxes in the accompanying consolidated balance sheets.

At March 31, 2015 and 2014, the Company had gross U.S. federal and state net operating loss carryforwards as follows (in thousands):
 
2015
 
2014
Federal
$
96,628

 
$
108,308

State
88,399

 
99,131


The federal net operating loss carryforwards at March 31, 2015 begin to expire in 2028 through 2034. The state net operating loss carryforwards at March 31, 2015 begin to expire in 2016 through 2034.


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In August 2014, as a result of the Merger, a change of control has occurred. Accordingly, management assessed the impact of the Merger for limitations under section 382 of the Internal Revenue Code ("IRC"). Since the Company was in a net unrealized built-in gain position the Company's annual IRC section 382 limitation will likely increase over the next five years resulting in realized built-in gains. No loss of the net operating loss utilization should result from the Merger.

The asset and liability method of accounting for deferred income taxes requires a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. At March 31, 2015, a valuation allowance of $27.1 million was recorded against the Company's net deferred tax assets, excluding the deferred tax liability for indefinite-lived intangible assets. The Company's deferred tax liabilities related to indefinite-lived intangible assets were not considered a future source of income to support the realization of deferred tax assets within the net operating loss carryforward period. The Company intends to maintain a valuation allowance until sufficient positive evidence exists to support its reversal.

As of March 31, 2015 and 2014, the Company's accrued liabilities for uncertain tax positions related to federal and state income taxes, including interest and penalties, amounted to $1.3 million and are reflected in other non-current liabilities in the accompanying consolidated balance sheets.

The total amount of unrecognized tax benefits as of March 31, 2015 and 2014 was $0.7 million. Approximately $0.7 million of this amount would, if recognized, have an effect on the effective income tax rate. In addition to the unrecognized tax benefits, the Company recognized $0.1 million of interest expense and no penalty expense for fiscal 2015 and had accrued interest and penalties of $0.5 million and $0.1 million as of March 31, 2015.

A reconciliation of the change in the unrecognized tax benefits from April 1, 2013 to March 31, 2015 is as follows (in thousands):

Balance, April 1, 2013
$
697

Decreases for tax positions taken during a prior period
(4
)
Balance, March 31, 2014
693

Increases for tax positions taken during a prior period

Decreases for tax positions taken during a prior period

Lapse of statute of limitations

Balance, March 31, 2015
$
693


The Company has identified its “major” tax jurisdictions to include the U.S. government and the states of California, Florida and New York. The Company's fiscal 2012 through 2014 federal tax returns remain open by statute. The Company's major state tax jurisdictions subject to examination are fiscal 2011 through 2014.

Note 8 - Related Party Transactions

As discussed in Note 1, "Nature of the Business" and Note 5, "Senior Secured Notes," in September 2014, the Company entered into the Debt for Equity Exchange Agreement with the Parent and the Investors pursuant to which the Investors exchanged approximately $121.1 million in aggregate principal amount of Senior Secured Notes of the Company, plus accrued and unpaid interest of approximately $2.9 million, for equity interests in the Parent.

In March 2015, the Investors became a lending party to the Amended and Restated Revolving Credit Facility and the Company paid approximately $0.8 million in lender fees, which were reflected as deferred debt costs in the accompanying consolidated financial statements.

As discussed in Note 5, "Senior Secured Notes," during fiscal 2015, the Company repurchased $56.1 million in aggregate principal amount of Senior Secured Notes, plus accrued and unpaid interest, in the open market, from the Investors. In January 2015, the Company exchanged approximately $32.0 million in aggregate principal amount of First Lien Notes, plus accrued and unpaid interest, held by the Investors for approximately $39.0 million aggregate principal amount of New Second Lien Notes, which bear interest at a rate of 7.0% per annum and mature in July 2020, pursuant to the New Second Lien Notes Exchange Agreement.


77


Subsequent to March 31, 2015, the Company repurchased approximately $2.0 million in aggregate principal amount of First Lien Notes, plus accrued and unpaid interest, in the open market, from the Investors. After giving effect to this repurchase approximately $273.2 million aggregate principal amount of First Lien Notes remain outstanding.
 
Mr. Elkins, a former member of our Board of Directors provided certain financial advisory services to the Company through Roxbury Advisory, LLC ("Roxbury"), a company controlled by Mr. Elkins, while he was a member of our Board of Directors. In August 2014, the consulting agreement between Roxbury and the Company was terminated. Payments for the services received from Roxbury totaled $50,000, $120,000 and $20,000 during fiscal 2015, 2014 and 2013, respectively, and the Company had no outstanding payables to Roxbury at March 31, 2015 and 2014.

Note 9 - Investments in Affiliates and Redeemable Noncontrolling Interests

Consolidated Joint Ventures

Mr. Olympia, LLC

In April 2005, the Company entered into a limited liability company agreement to form a joint venture, Mr. Olympia, LLC (“Olympia”), to manage and promote the Mr. Olympia fitness events. In September 2011, the Company and the other limited liability company member entered into an amendment to the limited liability company agreement (the "Amendment"), which, among other things, extended the time period that the Company could be required to purchase all the limited liability company units from the other member, from April 2015 to October 2019, for a fixed price of $3.0 million cash (the "Olympia Put Option"). The Amendment also extended the time period that the Company could require the other limited liability company member to sell to the Company all its limited liability company units from April 2015 to April 2020, for $3.0 million cash (the “Olympia Call Option”).

In April 2005, the other limited liability company member licensed certain trademarks related to the Mr. Olympia fitness events (collectively, the “Olympia Trademarks”) to Olympia for $3.0 million, payable by the Company over a 10-year period (the “License Fee”). Upon the exercise of the Olympia Put Option or the Olympia Call Option, the ownership of the Olympia Trademarks will be transferred to Olympia. If the Olympia Put Option or the Olympia Call Option is not exercised, then Olympia will retain the license to the Olympia Trademarks in perpetuity. The License Fee has been recorded as other identified intangibles, and the final payment was made in April 2013.

The Company has a variable interest in the Olympia joint venture, a variable interest entity. The Olympia joint venture is deemed a variable interest entity because there is insufficient equity investment at risk. The Company concluded it is the primary beneficiary because the holder of the Olympia Put Option has the ability to cause the Company to absorb the potential losses of the joint venture and the Company controls the activities that most significantly impact the economic performance of Olympia. As a result, the Company accounts for the Olympia joint venture as a consolidated subsidiary.

The Company follows the accounting for noncontrolling interest in equity that is redeemable at terms other than fair value. Accordingly, the Company has reflected the noncontrolling interest's equity within temporary equity for the Olympia joint venture as the Olympia joint venture’s securities are currently redeemable, pursuant to the terms of the Olympia Put Option. As a result, the Company has recorded the Olympia Put Option, at a minimum, equal to the maximum redemption amount as “Redeemable noncontrolling interests” in the accompanying financial statements.

Olympia’s net income was $1.2 million, $1.1 million and $0.7 million during fiscal 2015, 2014 and 2013, respectively.

Zinczenko-AMI Ventures, LLC

In February 2013, the Company entered into a limited liability company agreement to form a joint venture, Zinczenko-AMI Media Ventures, LLC ("ZAM"), to create a book publishing division. ZAM was initially capitalized by the Company and the other limited liability company member (the "ZAM LLC Member") and the Company and the ZAM LLC Member each received an initial ownership interest of 51% and 49%, respectively, in ZAM. In accordance with the terms of the limited liability company agreement, the Company is responsible for the day-to-day operations and management of ZAM.


78


The Company has a variable interest in the ZAM joint venture, a variable interest entity. The ZAM joint venture is deemed a variable interest entity because there is insufficient equity investment at risk. The Company concluded it is the primary beneficiary because the Company controls the activities that most significantly impact the economic performance of ZAM as manager of the day-to-day operations. As a result, the Company accounts for the ZAM joint venture as a consolidated subsidiary.

The operating results of ZAM were insignificant to the Company's consolidated financial statements during fiscal 2015, 2014 and 2013.

Redeemable Financial Instrument

Odyssey Magazine Publishing Group, Inc. (formerly known as Odyssey Magazine Publishing Group, LLC)

In June 2011, the Company entered into a limited liability company agreement to form a joint venture, Odyssey Magazine Publishing Group, LLC (“Odyssey”). Odyssey was initially capitalized by the Company and the other limited liability company member (the “Odyssey LLC Member”) with a total of $23.0 million in cash, and the Company and the Odyssey LLC Member each received an initial 50% ownership interest in Odyssey. In April 2012, pursuant to the exercise of a put option by the Odyssey LLC Member, the Company and the Odyssey LLC Member entered into a membership interest purchase agreement (the “Membership Interest Purchase Agreement”), which required the Company to purchase all of the Odyssey LLC Member’s interest in Odyssey.

In August 2012, Odyssey was converted from a limited liability company to a corporation (the “LLC Conversion”) and its name was changed to Odyssey Magazine Publishing Group, Inc. (“Odyssey Corporation”). Concurrent with the LLC Conversion, the membership interest held by each of the Company and the Odyssey LLC Member in Odyssey was canceled and converted into (i) for the Company, 1,000 shares of Common Stock and 731 shares of series A preferred stock in Odyssey Corporation, and (ii) for the Odyssey LLC Member, 269 shares of series A preferred stock in Odyssey Corporation. In connection with the LLC Conversion, the Company and the Odyssey LLC Member entered into a preferred stock purchase agreement (the “Preferred Stock Purchase Agreement”), wherein the Company purchased the Odyssey LLC Member’s shares of series A preferred stock in Odyssey Corporation and the Membership Interest Purchase Agreement was terminated. The Preferred Stock Purchase Agreement was paid in full as of March 31, 2014.

Redeemable Noncontrolling Interests

The following table reconciles equity attributable to the redeemable noncontrolling interests at March 31st (in thousands):

 
2015
2014
2013
Balance, beginning of year
$
3,000

$
3,000

$
15,620

Capital distributions
(1,253
)
(1,004
)
(694
)
Net income attributable to noncontrolling interests
1,236

1,056

694

Reduction in noncontrolling interests


(12,500
)
Other
17

(52
)
(120
)
Balance, end of year
$
3,000

$
3,000

$
3,000


The reduction in noncontrolling interests during fiscal 2013 of approximately $12.5 million represents the exercise of the Odyssey Put Option by the Odyssey LLC Member.

Unconsolidated Joint Ventures

We have other joint ventures that we do not consolidate as we lack the power to direct the activities that significantly impact the economic performance of these entities. The Company's investments in affiliates are carried at the fair value of the investment consideration at the date acquired, plus the Company's equity in undistributed earnings from that date. Unless otherwise disclosed below, the operating results of our unconsolidated joint ventures were insignificant to the Company's consolidated financial statements for fiscal 2015, 2014 and 2013.


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Radar Online, LLC

In October 2008, the Company entered into a limited liability company agreement to form Radar Online, LLC, a joint venture ("Radar"), to manage Radar Online, a website focusing on celebrity and entertainment news. Though the Company owns 50% of Radar and can exercise significant influence, it does not control the activities that most significantly impact the economic performance of this joint venture. As a result, the Company accounts for the investment in Radar using the equity method. The operating results of Radar were insignificant to the Company’s consolidated financial statements for fiscal 2015, 2014 and 2013. The management fees receivable from Radar totaled $1.9 million and $2.2 million as of March 31, 2015 and 2014, respectively, and is presented within other long-term assets in the accompanying consolidated financial statements.

Select Media Services, LLC

In September 2013, the Company contributed substantially all of its assets, comprising the Company's distribution and merchandising businesses operated by In Store Services, Inc., formerly known as Distribution Services, Inc. ("DSI"), a wholly-owned subsidiary of American Media, Inc., and $2.3 million in cash in exchange for a 27.5% membership interest in Select Media Services, LLC, a joint venture ("Select"), which operates as a merchandising and in-store services business. Though the Company can exercise significant influence, it does not control the activities that most significantly impact the economic performance of this joint venture. As a result, the Company accounts for the investment in Select using the equity method.

The membership interest and cash contribution in Select was adjusted in September 2014, pursuant to a one-time retroactive adjustment back to September 2013. The Company's membership interest has been replaced with a participation interest in the earnings of Select and the initial capital contribution was refunded to the Company in October 2014 along with the distribution of the Company's participation interest for the twelve months ended August 31, 2014. The operating results of Select were insignificant to the Company’s consolidated financial statements for fiscal 2015 and 2014.

Note 10 - Dispositions and Acquisitions

Dispositions

Shape, Fit Pregnancy and Natural Health

In January 2015, the Company and Weider Publications, LLC, a wholly-owned subsidiary of the Company, entered into an asset purchase agreement (the "Purchase Agreement") with Meredith Corporation ("Meredith"). The Purchase Agreement provides for the sale of the Company's Shape, Fit Pregnancy and Natural Health brands and magazines, which comprised its Women's Active Lifestyle segment. The Company received the initial cash consideration of $60.0 million on January 30, 2015 when the transaction closed. The Company is further entitled to additional consideration (the "Additional Consideration"), in the form of a one-time payment, following the completion of Meredith's 2018 fiscal year on June 30, 2018. The Additional Consideration, up to $60.0 million, will be based upon 40% of the adjusted operating profit of the combination of the Company's Shape brand and Meredith's Fitness brand.

Pursuant to the Purchase Agreement, the Company continued to publish the Shape, Fit Pregnancy and Natural Health magazines with on-sale dates through March 31, 2015, after which Meredith assumed publishing responsibilities for such titles. Effective as of the closing, Meredith assumed control over the digital assets used with Shape, Fit Pregnancy and Natural Health. The Company will have no continuing involvement in the operations of these publications subsequent to March 31, 2015.

Discontinued Operations

Net revenue, pre-tax income (loss) from discontinued operations, income tax provision (benefit) and income from discontinued operations, net of income taxes are as follows, in thousands:
 
For the Years Ended
 
March 31, 2015

March 31, 2014

March 31, 2013

Net revenue
$
53,123

$
56,875

$
51,892

Pre-tax income (loss) from discontinued operations
(245
)
6,319

898

Income tax provision (benefit)
(15,579
)
2,618

442

Income from discontinued operations, net of income taxes
$
15,334

$
3,701

$
456



80


There were no material pending divestitures as of March 31, 2015. Total assets and liabilities of discontinued operations as of March 31, 2014 were as follows, in thousands:

 
March 31, 2014
Cash and cash equivalents
$
5

Trade receivables, net
11,497

Inventories
657

Prepaid expenses and other current assets
1,899

Property and equipment, net
25

Deferred rack costs, net
468

Goodwill
24,010

Other identified intangibles, net
34,213

Total assets
$
72,774

Accounts payable
$
712

Accrued expenses and other liabilities
1,273

Deferred revenues
3,299

Deferred income taxes
15,781

Total liabilities
$
21,065


Country Weekly

In November 2014, we sold our Country Weekly publication for approximately $3 million in cash and entered into a long-term publishing services agreement. The operating results of Country Weekly were insignificant to the Company's consolidated financial statements for the fiscal years ended March 31, 2015, 2014 and 2013 and did not meet the criteria for presentation of discontinued operations. It is the Company's policy to present gains and losses from the sale of businesses that do not meet the criteria for presentation as discontinued operations within other income (expenses) in the accompanying consolidated financial statements.

Acquisitions

Soap Opera Digest

In July 2012, we acquired Soap Opera Digest magazine pursuant to a purchase agreement for one U.S. dollar plus the assumption of certain liabilities. The Company had previously been operating Soap Opera Digest magazine under a licensing agreement which contributed $2.7 million in revenues and $0.5 million of operating income, during fiscal 2013, through the date of acquisition of Soap Opera Digest magazine.

The Company has accounted for this transaction using the acquisition method of accounting. The acquisition related expenses incurred during the second quarter of fiscal 2013 were not significant and are included in selling, general and administrative expenses in the accompanying consolidated financial statements.

The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed (in thousands):
Total acquisition price - cash paid
$

Allocation of the acquisition price:
 
Identifiable intangible assets
1,649

Deferred revenue
(1,567
)
Other assumed liabilities
(82
)
Fair value of net assets acquired
$


Identifiable intangible assets acquired consisted of an indefinite lived tradename. The acquisition of Soap Opera Digest magazine was not material to the Company's operations; therefore pro forma financial information has not been presented.


81


Note 11 - Commitments and Contingencies

Litigation

On March 10, 2009, Anderson News, L.L.C. and Anderson Services, L.L.C., magazine wholesalers (collectively, “Anderson”), filed a lawsuit against American Media, Inc., DSI (now known as In-Store Services, Inc.), and various magazine publishers, wholesalers and distributors in the Federal District Court for the Southern District of New York (the “Anderson Action”). Anderson's complaint alleged that the defendants violated Section 1 of the Sherman Act by engaging in a purported industry-wide conspiracy to boycott Anderson and drive it out of business. Plaintiffs also purported to assert claims for defamation, tortious interference with contract and civil conspiracy. The complaint did not specify the amount of damages sought. On August 2, 2010, the District Court dismissed the action in its entirety with prejudice and without leave to replead and, on October 25, 2010, denied Anderson's motion for reconsideration of the dismissal decision. Anderson appealed the District Court's decisions.

On April 3, 2012, the Second Circuit issued a decision reversing the dismissal of the lawsuit and reinstating the antitrust and state law claims (except the defamation claim, which Anderson withdrew), and, on January 7, 2013, the United States Supreme Court declined to review the Second Circuit decision. Following the Second Circuit decision, the case has been proceeding in the District Court and the parties engaged in discovery. Fact discovery was completed in May 2014 and expert discovery was completed in October 2014. Anderson submitted an expert report calculating that damages are approximately $470 million, which would be subject to trebling should Anderson prevail against the defendants in the lawsuit. Defendants, including American Media, Inc. and DSI, also have submitted an expert report on damages, which opines that, separate and apart from the question of liability, Anderson has suffered no damages.

Anderson is in chapter 11 bankruptcy proceedings in Delaware bankruptcy court. On June 10, 2010, American Media, Inc. filed a proof of claim in that proceeding for $5.6 million (which it amended on December 3, 2013 to reflect the counterclaim (described below) it planned to file in the Anderson Action), but Anderson asserts that it has no assets to pay unsecured creditors like American Media, Inc. An independent court-appointed examiner has identified claims that Anderson could assert against Anderson insiders in excess of $340.0 million.

In an order of the Delaware bankruptcy court, entered on November 14, 2011, American Media, Inc. and four other creditors (collectively, the “Creditors”), which also are defendants in the Anderson Action, were granted the right to file lawsuits against Anderson insiders asserting Anderson's claims identified by the examiner. The Creditors' retention of counsel to pursue the claims on a contingency fee basis was also approved. On November 14, 2011, pursuant to this order, a complaint was filed against 10 defendants. After a temporary stay of discovery pending conclusion of fact discovery in the Anderson Action, discovery in the bankruptcy action proceeded. On December 12, 2014, defendants in the adversary action moved for partial summary judgment seeking dismissal of certain of the Creditors’ claims. The motion was fully briefed on April 20, 2015.

By order dated November 6, 2013, the Delaware bankruptcy court granted American Media, Inc. and four of its co-defendants relief from the automatic bankruptcy stay of litigation against Anderson News, L.L.C. so that they could file a counterclaim in the Anderson Action against Anderson News, L.L.C. alleging that Anderson News, L.L.C. had violated the antitrust laws by engaging in a conspiracy to fix prices that wholesalers would pay publishers for their magazines and seeking an unspecified amount of damages to be proved at trial. Permission was obtained on January 23, 2014 from the District Court to file the counterclaim against Charles Anderson, Jr. and Anderson News, L.L.C. American Media, Inc. filed its amended answer and counterclaim in the Anderson Action on February 14, 2014. On December 15, 2014, the parties in the Anderson Action filed motions for summary judgment and to strike certain proposed expert testimony. The briefing on these motions was completed on April 17, 2015 and a hearing regarding these motions has been scheduled for July 22, 2015.

While it is not possible to predict the outcome of the Anderson Action or to estimate the impact on American Media, Inc. and DSI of a final judgment against American Media, Inc. and DSI (if that were to occur), American Media, Inc. and DSI believe that the claims asserted by Anderson, in the Anderson Action, are meritless. American Media, Inc. and DSI have antitrust claim insurance that covers defense costs. American Media, Inc. and DSI have filed a claim for insurance coverage with regard to the Anderson Action and certain of their defense costs are being paid by the insurer, and, in the event of a settlement or a damages award by the Court and subject to the applicable policy limits, American Media, Inc. and DSI anticipate seeking reimbursement from the insurer for payment of such settlement or damages. American Media, Inc. and DSI will continue to vigorously defend the case.


82


In addition, because the focus of some of our publications often involves celebrities and controversial subjects, the risk of defamation or invasion of privacy litigation exists. Our experience indicates that the claims for damages made in celebrity lawsuits are usually inflated and such lawsuits are usually defensible and, in any event, any reasonably foreseeable material liability or settlement would likely be covered by insurance, subject to any applicable deductible. We also periodically evaluate and assess the risks and uncertainties associated with our pending litigation disregarding the existence of insurance that would cover liability for such litigation. At present, in the opinion of management, after consultation with outside legal counsel, the liability resulting from pending litigation, even if insurance were not available, is not expected to have a material effect on our consolidated financial statements.

Long-Term Agreements

The Company has several long-term agreements related to the printing, pre-press and fulfillment of publications. Based on current pricing and production levels, future commitments under these agreements are estimated as follows (in thousands):

Fiscal Year
Printing
Pre-Press
Fulfillment
Transportation
Total
2016
$
30,749

$
816

$
3,039

$
4,102

$
38,706

2017
31,362

817

3,039

1,644

36,862

2018
32,107

818

3,039


35,964

2019
32,869

428

3,039


36,336

2020
25,237

38

2,279


27,554

  Thereafter

29



29

Total
$
152,324

$
2,946

$
14,435

$
5,746

$
175,451


Operating Leases

During fiscal 2015, the Company leased offices, facilities and equipment under operating lease agreements. The leases for our offices and facilities expire between 2015 and 2023, and some of these leases are subject to our renewal. Total rent expense charged to operations for all such leases was approximately $3.6 million, $3.4 million and $4.2 million for fiscal 2015, 2014 and 2013, respectively. Rent expense for operating leases, which may include free rent or fixed escalation amounts in addition to minimum lease payments, is recognized on a straight-line basis over the duration of each lease term. The future minimum lease payments under operating leases are estimated as follows (in thousands):

Fiscal Year
 
2016
$
2,093

2017
2,606

2018
2,821

2019
3,120

2020
3,120

  Thereafter
8,711

Total
$
22,471


83


Other Agreements

The Company has several long-term consulting agreements with unrelated third parties to assist with the marketing of its brands. The future payments under these agreements are estimated as follows (in thousands):
Fiscal Year
 
2016
$
7,370

2017
6,981

2018
6,613

2019
5,642

2020
5,642

  Thereafter
4,231

Total
$
36,479


Note 12 - Licensing and Publishing Services Agreements

Licensing Agreements

In December 2014, the Company entered into a long-term licensing agreement (the "Licensing Agreement") with an unrelated third party (the "Licensee") pursuant to which the Company granted a license for the international publication, in print and digital formats, of Men's Fitness, Muscle & Fitness, Flex and Muscle & Fitness Hers. Upon execution of the Licensing Agreement, the Company received $0.9 million as a guaranteed minimum royalty over the term of the agreement. The Company is entitled to additional royalties if actual earned royalties exceed the guaranteed minimum royalty.

Publishing Services

In November 2009, the Company entered into a long-term publishing services agreement with Playboy Enterprises, Inc. (“Playboy”), pursuant to which the Company assumed responsibility for Playboy magazine's advertising sales and marketing, circulation and production management, newsstand distribution and back office financial services. Playboy compensated the Company for these services through fees and commissions for advertising sales on print and digital revenues, in addition to certain cost savings and subscription revenue incentives. The Playboy publishing services agreement terminated in December 2014 and contributed $1.3 million, $3.5 million and $3.6 million in revenues and $1.0 million, $1.8 million and $1.7 million of operating income during fiscal 2015, 2014 and 2013, respectively.

Note 13 - Business Segment Information

After the divestiture of Shape, Fit Pregnancy and Natural Health in January 2015, which comprised our Women's Actively Lifestyle segment, the Company has three reporting segments: Celebrity Brands, Men’s Active Lifestyle and Corporate and Other. The operating segments are based on each having the following characteristics: the operating segments engage in similar business activities from which they earn revenues and incur expenses; the operating results are regularly reviewed by the chief operating decision maker (the "CODM"), and there is discrete financial information. The Company does not aggregate any of its operating segments.

The Celebrity Brands segment includes National Enquirer, Star, Globe, National Examiner, OK! and Soap Opera Digest.

The Men’s Active Lifestyle segment includes Men’s Fitness, Muscle & Fitness, Flex and Muscle & Fitness Hers.

The Corporate and Other segment includes international licensing, photo syndication to third parties and corporate overhead. Corporate overhead expenses are not allocated to other segments and include production, circulation, executive staff, information technology, accounting, legal, human resources and administration department costs. The Corporate and Other segment also includes print and digital advertising sales and strategic management direction in the following areas: manufacturing, subscription circulation, logistics, event marketing and full back office financial functions. 


84


The Company’s accounting policies for the business segments are the same as those described in Note 2, "Summary of Significant Accounting Policies." The following information includes certain intersegment transactions and is, therefore, not necessarily indicative of the results had the operations existed as stand-alone businesses. Intersegment transactions represent intercompany services, which are billed at what management believes are prevailing market rates. These intersegment transactions, which represent transactions between operating units in different business segments, are eliminated in consolidation.

Segment information for fiscal 2015, 2014 and 2013 and the assets employed as of March 31, 2015 and 2014 are as follows (in thousands):

 
Fiscal years ended March 31,

2015
 
2014
 
2013
Operating revenues
Celebrity Brands
$
179,825

 
$
202,580

 
$
215,946

Men's Active Lifestyle Group
59,226

 
66,698

 
60,770

Corporate and Other
6,129

 
18,068

 
19,918

Total operating revenues
$
245,180

 
$
287,346

 
$
296,634

Operating income (loss)
Celebrity Brands
$
67,915

 
$
73,276

 
$
32,313

Men's Active Lifestyle Group
(5,846
)
 
11,730

 
10,366

Corporate and Other
(67,850
)
 
(51,221
)
 
(43,652
)
Total operating income (loss)
$
(5,781
)
 
$
33,785

 
$
(973
)
Depreciation and amortization
Celebrity Brands
$
1,787

 
$
3,545

 
$
3,182

Men's Active Lifestyle Group
2,478

 
824

 
370

Corporate and Other
9,700

 
9,066

 
6,021

Total depreciation and amortization
$
13,965

 
$
13,435

 
$
9,573

Impairment of goodwill and intangible assets
Celebrity Brands
$

 
$

 
$
42,801

Men's Active Lifestyle Group
17,403

 
9,238

 
7,797

Corporate and Other
1,055

 

 

Total impairment of goodwill and intangible assets
$
18,458

 
$
9,238

 
$
50,598

Amortization of deferred rack costs
Celebrity Brands
$
5,391

 
$
6,170

 
$
8,037

Men's Active Lifestyle Group
74

 
64

 
30

Total amortization of deferred rack costs
$
5,465

 
$
6,234

 
$
8,067


Total Assets
March 31,
2015
 
March 31,
2014
Celebrity Brands
$
330,850

 
$
339,617

Men's Active Lifestyle Group
86,775

 
105,994

Corporate and Other (1)
48,400

 
54,255

Discontinued Operations

 
72,774

Total assets
$
466,025

 
$
572,640


(1) Amounts are primarily comprised of inventories, prepaid expenses, property and equipment, deferred debt costs and certain other assets.


85


Geographic Data

The Company operates principally in two geographic areas, the United States of America and Europe (primarily the United Kingdom). There were no significant transfers between geographic areas during the three fiscal years ended March 31, 2015. The following tables present revenue by geographic area for fiscal 2015, 2014 and 2013 and the assets employed as of March 31, 2015 and 2014 (in thousands):
 
Fiscal years ended March 31,

2015
 
2014
 
2013
Operating revenues:
 
 
 
 
 
United States of America
$
234,554

 
$
275,161

 
$
283,971

Europe
10,626

 
12,185

 
12,663

Total operating revenues
$
245,180

 
$
287,346

 
$
296,634



March 31,
2015
 
March 31,
2014
Assets:
 
 
 
United States of America
$
458,197

 
$
564,214

Europe
7,828

 
8,426

Total assets
$
466,025

 
$
572,640


Note 14 - Capital Structure

As discussed in Note 1, "Nature of the Business," in August 2014, pursuant to the Merger Agreement, certain Investors of the Company acquired 100% of the issued and outstanding shares of common stock of the Company through the Merger, with the Company surviving the Merger.

Prior to the Merger, the Company had authorized 15,000,000 shares of stock, comprised of 1,000,000 shares of $0.0001 par value preferred stock and 14,000,000 shares of $0.0001 par value common stock. The Board of Directors could determine the rights, preferences and limitations of the preferred stock when issued. Prior to the Merger, there were no shares of preferred stock issued or outstanding, 10,000,000 shares of common stock were issued and outstanding and 1,172,150 shares of restricted common stock were issued and outstanding. See Stock Based Compensation below for a further description of the Equity Incentive Plan regarding the shares of restricted common stock.

In accordance with the Merger Agreement, each share of the Company’s common stock issued and outstanding immediately prior to the Merger, including any shares of restricted stock of the Company, were converted into the right to receive $0.1795 per share in cash, and each share of the Company’s common stock was canceled and retired and ceased to exist.

Each share of common stock of the Merger Sub outstanding immediately prior to the Merger was converted into and exchanged for one validly issued, fully paid and non-assessable share of the Company’s common stock. Immediately prior to the Merger, Merger Sub had 100 shares of common stock issued and outstanding. As result, immediately after the Merger, the Company has 100 shares of common stock issued and outstanding, which are owned by the Parent.

Subsequent to the Merger, the Company had authorized 68,000,000 shares of stock, comprised of 1,000,000 shares of $0.0001 preferred stock and 67,000,000 shares of $0.0001 par value common stock. In November 2014, the Company amended the certificate of incorporation of AMI to, among other things, amend the authorized shares of stock. As a result, the Company has authorized 100 shares of $0.0001 par value common stock. At March 31, 2015, there were 100 shares of common stock issued and outstanding.

As discussed in Note 5, "Senior Secured Notes," in September 2014, pursuant to the Debt for Equity Exchange Agreement with the Parent and the Investors, the Investors exchanged approximately $121.1 million aggregate principal amount of Senior Secured Notes, plus accrued and unpaid interest of approximately $2.9 million, for additional equity interests in the Parent.


86


Also, in September 2014, the Parent made a capital contribution to the Company of approximately $0.6 million in cash.

We did not make any dividend payments in fiscal 2015, 2014 or 2013, and we do not anticipate paying any dividends on our common stock in the foreseeable future. The terms of our Amended and Restated Revolving Credit Facility restrict our ability to pay dividends, and any future indebtedness that we may incur could preclude us from paying dividends. With respect to the dividend restriction, the Amended and Restated Revolving Credit Facility and the Supplemental Indentures include a cap on the total amount of cash available for distribution to our common stockholders.

Stock Based Compensation

In December 2010, the Company adopted an equity incentive plan (the “Equity Incentive Plan”), which provided for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonus awards and performance compensation awards to incentivize and retain directors, officers, employees, consultants and advisors. Under the terms of the Equity Incentive Plan, the Compensation Committee of the Board of Directors administered the Equity Incentive Plan and had the authority to determine the recipients to whom awards were made, the amount of the awards, the terms of the vesting and other terms as applicable.

Equity Incentive Plan

In December 2010, the Compensation Committee was authorized to issue up to 1.1 million shares of the Company's common stock through the issuance of restricted stock awards. In July 2013, the Compensation Committee was authorized to issue up to an additional 500,000 shares of the Company's common stock through the issuance of restricted awards.

The shares of restricted stock fully vest upon the earlier to occur of a change of control or an initial public offering, each as defined in the Equity Incentive Plan (a “Liquidity Event”). The holders of the restricted stock were entitled to receive dividends, if and when declared by the Company, and could have exercised voting rights with respect to the common shares while the shares were restricted.

During fiscal 2013, 2014 and 2015, the Compensation Committee granted 97,100, 102,500 and 75,600 restricted shares, respectively, to certain key officers, employees and directors under the same terms of the restricted stock grants in fiscal 2011. Certain former employees and directors forfeited their shares of restricted stock upon termination of their employment with the Company or service to the Board of Directors, as applicable, totaling 4,200, 65,417 and 31,600 during fiscal 2013, 2014 and 2015, respectively.

Immediately prior to the Merger, there were 1,172,150 shares of restricted common stock issued and outstanding. In August 2014, as a result of the Merger, a change of control of the Company (which was a Liquidity Event under the Equity Incentive Plan) occurred and the Company recognized stock based compensation expense of approximately $210,000, in accordance with FASB ASC 718, Compensation - Stock Compensation.

Note 15 - Supplemental Condensed Consolidating Financial Information

The following tables present condensed consolidating financial statements of (a) the parent company, American Media, Inc., as issuer of the Senior Secured Notes; (b) on a combined basis, the subsidiary guarantors of the Senior Secured Notes; and (c) on a combined basis, the subsidiaries that are not guarantors of the Senior Secured Notes. Separate financial statements of the subsidiary guarantors are not presented because the parent company owns all outstanding voting stock of each of the subsidiary guarantors and the guarantee by each subsidiary guarantor is full and unconditional and joint and several. As a result and in accordance with Rule 3-10(f) of Regulation S-X under the Securities Exchange Act of 1934, as amended, the Company includes the following tables in these notes to the condensed consolidated financial statements:


87


SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
AS OF MARCH 31, 2015
(in thousands)
 
Parent
 
Guarantors
 
Non Guarantors
 
Eliminations
 
Condensed Consolidated
    ASSETS
CURRENT ASSETS:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
1,040

 
$
2,412

 
$

 
$
3,452

Trade receivables, net

 
38,058

 
1,354

 

 
39,412

Inventories

 
739

 
134

 

 
873

Prepaid expenses and other current assets

 
16,207

 
636

 
(5,487
)
 
11,356

Total current assets

 
56,044

 
4,536

 
(5,487
)
 
55,093

PROPERTY AND EQUIPMENT, NET:
 
 
 
 
 
 
 
 
 
Leasehold improvements

 
3,801

 

 

 
3,801

Furniture, fixtures and equipment

 
43,189

 
790

 

 
43,979

Less – accumulated depreciation

 
(29,465
)
 
(765
)
 

 
(30,230
)
Total property and equipment, net

 
17,525

 
25

 

 
17,550

OTHER ASSETS:
 
 
 
 
 
 
 
 
 
Deferred debt costs, net
6,383

 

 

 

 
6,383

Deferred rack costs, net

 
4,824

 

 

 
4,824

Investments in affiliates
587,126

 
224

 

 
(586,547
)
 
803

Other long-term assets

 
3,193

 

 

 
3,193

Due from affiliates

 
300,246

 

 
(300,246
)
 

Total other assets
593,509

 
308,487

 

 
(886,793
)
 
15,203

GOODWILL AND OTHER IDENTIFIED INTANGIBLE ASSETS:
 
 
 
 
 
 
Goodwill

 
149,488

 
4,510

 

 
153,998

Other identified intangibles, net

 
218,181

 
6,000

 

 
224,181

Total goodwill and other identified intangible assets

 
367,669

 
10,510

 

 
378,179

TOTAL ASSETS
$
593,509

 
$
749,725

 
$
15,071

 
$
(892,280
)
 
$
466,025

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
15,434

 
$
347

 
$

 
$
15,781

Accrued expenses and other liabilities

 
104,580

 
5,393

 
(65,958
)
 
44,015

Accrued interest
10,075

 

 

 

 
10,075

Deferred revenues

 
25,718

 
1,016

 

 
26,734

Total current liabilities
10,075

 
145,732

 
6,756

 
(65,958
)
 
96,605

NON-CURRENT LIABILITIES:
 
 
 
 
 
 
 
 
 
Senior secured notes
309,569

 

 

 

 
309,569

Revolving credit facility
14,700

 

 

 

 
14,700

Other non-current liabilities

 
8,352

 

 

 
8,352

Deferred income taxes

 
10,250

 
26

 
60,471

 
70,747

Due to affiliates
296,113

 

 
4,133

 
(300,246
)
 

Total liabilities
630,457

 
164,334

 
10,915

 
(305,733
)
 
499,973

COMMITMENTS AND CONTINGENCIES
 
 
 
 
 
 
Redeemable noncontrolling interests

 

 
3,000

 

 
3,000

STOCKHOLDERS' (DEFICIT) EQUITY:
 
 
 
 
 
 
 
 
 
Total stockholders' (deficit) equity
(36,948
)
 
585,391

 
1,156

 
(586,547
)
 
(36,948
)
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
$
593,509

 
$
749,725

 
$
15,071

 
$
(892,280
)
 
$
466,025



88


SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
AS OF MARCH 31, 2014
(in thousands)
 
Parent
 
Guarantors
 
Non Guarantors
 
Eliminations
 
Condensed Consolidated
    ASSETS
CURRENT ASSETS:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
415

 
$
2,615

 
$

 
$
3,030

Trade receivables, net

 
31,226

 
1,912

 

 
33,138

Inventories

 
9,650

 
603

 

 
10,253

Prepaid expenses and other current assets

 
19,737

 
493

 
(5,487
)
 
14,743

Assets of discontinued operations

 
72,774

 

 

 
72,774

Total current assets

 
133,802

 
5,623

 
(5,487
)
 
133,938

PROPERTY AND EQUIPMENT, NET:
 
 
 
 
 
 
 
 
 
Leasehold improvements

 
3,798

 

 

 
3,798

Furniture, fixtures and equipment

 
39,457

 
822

 

 
40,279

Less – accumulated depreciation

 
(22,461
)
 
(667
)
 

 
(23,128
)
Total property and equipment, net

 
20,794

 
155

 

 
20,949

OTHER ASSETS:
 
 
 
 
 
 
 
 
 
Deferred debt costs, net
8,125

 

 

 

 
8,125

Deferred rack costs, net

 
4,605

 

 

 
4,605

Investments in affiliates
546,696

 
2,248

 

 
(546,085
)
 
2,859

Other long-term assets

 
3,841

 

 

 
3,841

Due from affiliates

 
176,552

 

 
(176,552
)
 

Total other assets
554,821

 
187,246

 

 
(722,637
)
 
19,430

GOODWILL AND OTHER IDENTIFIED INTANGIBLE ASSETS:
Goodwill

 
158,378

 
4,510

 

 
162,888

Other identified intangibles, net

 
229,435

 
6,000

 

 
235,435

Total goodwill and other identified intangible assets

 
387,813

 
10,510

 

 
398,323

TOTAL ASSETS
$
554,821

 
$
729,655

 
$
16,288

 
$
(728,124
)
 
$
572,640

LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
18,877

 
$
526

 
$

 
$
19,403

Accrued expenses and other liabilities

 
23,904

 
5,863

 
(3,239
)
 
26,528

Accrued interest
15,897

 

 

 

 
15,897

Deferred revenues

 
28,455

 
1,564

 

 
30,019

Liabilities of discontinued operations

 
21,065

 

 

 
21,065

Total current liabilities
15,897

 
92,301

 
7,953

 
(3,239
)
 
112,912

NON-CURRENT LIABILITIES:
 
 
 
 
 
 
 
 
 
Senior secured notes
469,477

 

 

 

 
469,477

Revolving credit facility
29,000

 

 

 

 
29,000

Other non-current liabilities

 
7,172

 

 

 
7,172

Deferred income taxes

 
85,255

 
45

 
(2,248
)
 
83,052

Due to affiliates
172,420

 

 
4,132

 
(176,552
)
 

Total liabilities
686,794

 
184,728

 
12,130

 
(182,039
)
 
701,613

COMMITMENTS AND CONTINGENCIES
 
 
 
 
 
 
Redeemable noncontrolling interests

 

 
3,000

 

 
3,000

STOCKHOLDERS' (DEFICIT) EQUITY:
 
 
 
 
 
 
 
 
 
Total stockholders' (deficit) equity
(131,973
)
 
544,927

 
1,158

 
(546,085
)
 
(131,973
)
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
$
554,821

 
$
729,655

 
$
16,288

 
$
(728,124
)
 
$
572,640



89


SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME (LOSS)
AND COMPREHENSIVE INCOME (LOSS)
FOR THE FISCAL YEAR ENDED MARCH 31, 2015
(in thousands)
 
Parent
 
Guarantors
 
Non Guarantors
 
Eliminations
 
Condensed Consolidated
OPERATING REVENUES:
 
 
 
 
 
 
 
 
 
Circulation
$

 
$
161,464

 
$
4,735

 
$

 
$
166,199

Advertising

 
61,566

 
5,692

 

 
67,258

Other

 
4,598

 
7,125

 

 
11,723

Total operating revenues

 
227,628

 
17,552

 

 
245,180

OPERATING EXPENSES:
 
 
 
 
 
 
 
 
 
Editorial

 
25,258

 
1,546

 

 
26,804

Production

 
59,329

 
6,759

 

 
66,088

Distribution, circulation and other cost of sales

 
36,961

 
2,049

 

 
39,010

Selling, general and administrative

 
82,325

 
4,311

 

 
86,636

Depreciation and amortization

 
13,785

 
180

 

 
13,965

Impairment of goodwill and intangible assets

 
18,458

 

 

 
18,458

Total operating expenses

 
236,116

 
14,845

 

 
250,961

OPERATING INCOME

 
(8,488
)
 
2,707

 

 
(5,781
)
OTHER EXPENSES:
 
 
 
 
 
 
 
 
 
Interest expense
(50,772
)
 
(34
)
 
(41
)
 

 
(50,847
)
Amortization of deferred debt costs
(4,011
)
 

 

 

 
(4,011
)
Other expenses, net

 
3,710

 
(2
)
 

 
3,708

Total other expense, net
(54,783
)
 
3,676

 
(43
)
 

 
(51,150
)
(LOSS) INCOME BEFORE PROVISION (BENEFIT) FOR INCOME TAXES, AND EQUITY IN EARNINGS OF CONSOLIDATED SUBSIDIARIES
(54,783
)
 
(4,812
)
 
2,664

 

 
(56,931
)
PROVISION FOR INCOME TAXES

 
(15,712
)
 
23

 

 
(15,689
)
EQUITY IN EARNINGS OF CONSOLIDATED SUBSIDIARIES
27,656

 
185

 

 
(27,841
)
 

NET LOSS FROM CONTINUING OPERATIONS
(27,127
)
 
11,085

 
2,641

 
(27,841
)
 
(41,242
)
INCOME FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES

 
15,334

 

 

 
15,334

NET (LOSS) INCOME
(27,127
)
 
26,419

 
2,641

 
(27,841
)
 
(25,908
)
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

 
(1,219
)
 

 
(1,219
)
NET (LOSS) INCOME ATTRIBUTABLE TO AMERICAN MEDIA, INC AND SUBSIDIARIES
$
(27,127
)
 
$
26,419

 
$
1,422

 
$
(27,841
)
 
$
(27,127
)
 
Parent
 
Guarantors
 
Non Guarantors
 
Eliminations
 
Condensed Consolidated
NET (LOSS) INCOME
$
(27,127
)
 
$
26,419

 
$
2,641

 
$
(27,841
)
 
$
(25,908
)
Foreign currency translation adjustment

 

 
(161
)
 

 
(161
)
Comprehensive (loss) income
(27,127
)
 
26,419

 
2,480

 
(27,841
)
 
(26,069
)
Less: comprehensive income attributable to noncontrolling interests

 

 
(1,219
)
 

 
(1,219
)
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO AMERICAN MEDIA, INC. AND SUBSIDIARIES
$
(27,127
)
 
$
26,419

 
$
1,261

 
$
(27,841
)
 
$
(27,288
)


90


SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME (LOSS)
AND COMPREHENSIVE INCOME (LOSS)
FOR THE FISCAL YEAR ENDED MARCH 31, 2014
(in thousands)
 
Parent
 
Guarantors
 
Non Guarantors
 
Eliminations
 
Condensed Consolidated
OPERATING REVENUES:
 
 
 
 
 
 
 
 
 
Circulation
$

 
$
182,575

 
$
5,038

 
$

 
$
187,613

Advertising

 
66,884

 
6,069

 

 
72,953

Other

 
20,489

 
6,291

 

 
26,780

Total operating revenues

 
269,948

 
17,398

 

 
287,346

OPERATING EXPENSES:
 
 
 
 
 
 
 
 
 
Editorial

 
29,414

 
1,456

 

 
30,870

Production

 
69,872

 
5,792

 

 
75,664

Distribution, circulation and other cost of sales

 
43,181

 
2,842

 

 
46,023

Selling, general and administrative

 
75,077

 
3,254

 

 
78,331

Depreciation and amortization

 
13,355

 
80

 

 
13,435

Impairment of goodwill and intangible assets

 
9,238

 

 

 
9,238

Total operating expenses

 
240,137

 
13,424

 

 
253,561

OPERATING INCOME

 
29,811

 
3,974

 

 
33,785

OTHER EXPENSES:
 
 
 
 
 
 
 
 
 
Interest expense
(58,372
)
 
17

 

 

 
(58,355
)
Amortization of deferred debt costs
(1,664
)
 

 

 

 
(1,664
)
Other expenses, net

 
(79
)
 

 

 
(79
)
Total other expense, net
(60,036
)
 
(62
)
 

 

 
(60,098
)
(LOSS) INCOME BEFORE PROVISION (BENEFIT) FOR INCOME TAXES, AND EQUITY IN EARNINGS OF CONSOLIDATED SUBSIDIARIES
(60,036
)
 
29,749

 
3,974

 

 
(26,313
)
PROVISION FOR INCOME TAXES
25,296

 
4,879

 
484

 

 
30,659

EQUITY IN EARNINGS OF CONSOLIDATED SUBSIDIARIES
31,013

 
1,387

 

 
(32,400
)
 

NET LOSS FROM CONTINUING OPERATIONS
(54,319
)
 
26,257

 
3,490

 
(32,400
)
 
(56,972
)
INCOME FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES

 
3,701

 

 

 
3,701

NET (LOSS) INCOME
(54,319
)
 
29,958

 
3,490

 
(32,400
)
 
(53,271
)
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

 
(1,048
)
 

 
(1,048
)
NET (LOSS) INCOME ATTRIBUTABLE TO AMERICAN MEDIA, INC AND SUBSIDIARIES
$
(54,319
)
 
$
29,958

 
$
2,442

 
$
(32,400
)
 
$
(54,319
)
 
Parent
 
Guarantors
 
Non Guarantors
 
Eliminations
 
Condensed Consolidated
NET (LOSS) INCOME
$
(54,319
)
 
$
29,958

 
$
3,490

 
$
(32,400
)
 
$
(53,271
)
Foreign currency translation adjustment

 

 
108

 

 
108

Comprehensive (loss) income
(54,319
)
 
29,958

 
3,598

 
(32,400
)
 
(53,163
)
Less: comprehensive income attributable to noncontrolling interests

 

 
(1,048
)
 

 
(1,048
)
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO AMERICAN MEDIA, INC. AND SUBSIDIARIES
$
(54,319
)
 
$
29,958

 
$
2,550

 
$
(32,400
)
 
$
(54,211
)


91


SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME (LOSS)
AND COMPREHENSIVE INCOME (LOSS)
FOR THE FISCAL YEAR ENDED MARCH 31, 2013
(in thousands)
 
Parent
 
Guarantors
 
Non Guarantors
 
Eliminations
 
Condensed Consolidated
OPERATING REVENUES:
 
 
 
 
 
 
 
 
 
Circulation
$

 
$
197,999

 
$
4,959

 
$

 
$
202,958

Advertising

 
58,534

 
6,678

 

 
65,212

Other

 
23,608

 
4,856

 

 
28,464

Total operating revenues

 
280,141

 
16,493

 

 
296,634

OPERATING EXPENSES:
 
 
 
 
 
 
 
 
 
Editorial

 
32,018

 
1,602

 

 
33,620

Production

 
77,007

 
4,999

 

 
82,006

Distribution, circulation and other cost of sales

 
51,442

 
2,514

 

 
53,956

Selling, general and administrative

 
63,955

 
3,899

 

 
67,854

Depreciation and amortization

 
9,476

 
97

 

 
9,573

Impairment of goodwill and intangible assets

 
50,598

 

 

 
50,598

Total operating expenses

 
284,496

 
13,111

 

 
297,607

OPERATING (LOSS) INCOME

 
(4,355
)
 
3,382

 

 
(973
)
OTHER EXPENSES:
 
 
 
 
 
 
 
 
 
Interest expense
(59,744
)
 
(35
)
 

 

 
(59,779
)
Amortization of deferred debt costs
(1,433
)
 

 

 

 
(1,433
)
Other expenses, net

 
(251
)
 
(1
)
 

 
(252
)
Total other expense, net
(61,177
)
 
(286
)
 
(1
)
 

 
(61,464
)
(LOSS) INCOME BEFORE (BENEFIT) PROVISION FOR INCOME TAXES, AND (LOSSES) EQUITY IN EARNINGS OF CONSOLIDATED SUBSIDIARIES
(61,177
)
 
(4,641
)
 
3,381

 

 
(62,437
)
(BENEFIT) PROVISION FOR INCOME TAXES
(22,909
)
 
16,074

 
399

 

 
(6,436
)
(LOSSES) EQUITY IN EARNINGS OF CONSOLIDATED SUBSIDIARIES
(17,971
)
 
1,592

 

 
16,379

 

NET LOSS FROM CONTINUING OPERATIONS
(56,239
)
 
(19,123
)
 
2,982

 
16,379

 
(56,001
)
INCOME FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES

 
456

 

 

 
456

NET (LOSS) INCOME
(56,239
)
 
(18,667
)
 
2,982

 
16,379

 
(55,545
)
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

 
(694
)
 

 
(694
)
NET (LOSS) INCOME ATTRIBUTABLE TO AMERICAN MEDIA, INC. AND SUBSIDIARIES
$
(56,239
)
 
$
(18,667
)
 
$
2,288

 
$
16,379

 
$
(56,239
)
 
Parent
 
Guarantors
 
Non Guarantors
 
Eliminations
 
Condensed Consolidated
NET (LOSS) INCOME
$
(56,239
)
 
$
(18,667
)
 
$
2,982

 
$
16,379

 
$
(55,545
)
Foreign currency translation adjustment

 

 
(124
)
 

 
(124
)
Comprehensive (loss) income
(56,239
)
 
(18,667
)
 
2,858

 
16,379

 
(55,669
)
Less: comprehensive income attributable to noncontrolling interests

 

 
(694
)
 

 
(694
)
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO AMERICAN MEDIA, INC. AND SUBSIDIARIES
$
(56,239
)
 
$
(18,667
)
 
$
2,164

 
$
16,379

 
$
(56,363
)


92


SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED MARCH 31, 2015
(in thousands)
 
Parent
 
Guarantors
 
Non Guarantors
 
Eliminations
 
Condensed Consolidated
Cash Flows from Operating Activities:
 
 
 
 
 
 
 
 
 
   Net cash provided by (used in) operating activities
$
(104,995
)
 
$
116,650

 
$
1,050

 
$

 
$
12,705

Cash Flows from Investing Activities:
Purchases of property and equipment

 
(7,176
)
 

 

 
(7,176
)
Purchase of intangible assets

 
(2,738
)
 

 

 
(2,738
)
Proceeds from sale of publications
63,000

 

 

 

 
63,000

Distributions from affiliates

 
2,570

 

 

 
2,570

Due from affiliates

 
(107,916
)
 

 
107,916

 

Other

 
9

 

 

 
9

   Net cash provided by (used in) investing activities
63,000

 
(115,251
)
 

 
107,916

 
55,665

Cash Flows from Financing Activities:
Proceeds from revolving credit facility
62,800

 

 

 

 
62,800

Repayment to revolving credit facility
(77,100
)
 

 

 

 
(77,100
)
Proceeds from issuance of senior secured notes
12,500

 

 

 

 
12,500

Senior secured notes repurchases
(56,100
)
 

 

 

 
(56,100
)
Capital contribution
573

 

 

 

 
573

Costs incurred in restructuring
(4,315
)
 

 

 

 
(4,315
)
Redemption premium payment
(2,206
)
 

 

 

 
(2,206
)
Payment of debt costs
(2,073
)
 

 

 

 
(2,073
)
Payments to noncontrolling interest holder of Olympia

 

 
(1,253
)
 

 
(1,253
)
Due to affiliates
107,916

 

 

 
(107,916
)
 

   Net cash provided by (used in) financing activities
41,995

 

 
(1,253
)
 
(107,916
)
 
(67,174
)
Effect of exchange rate changes on cash

 
(774
)
 

 

 
(774
)
Net increase (decrease) in cash and cash equivalents

 
625

 
(203
)
 

 
422

Cash and cash equivalents, beginning of period

 
415

 
2,615

 

 
3,030

Cash and cash equivalents, end of period
$

 
$
1,040

 
$
2,412

 
$

 
$
3,452



93


SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED MARCH 31, 2014
(in thousands)
 
Parent
 
Guarantors
 
Non Guarantors
 
Eliminations
 
Condensed Consolidated
Cash Flows from Operating Activities:
 
 
 
 
 
 
 
 
 
   Net cash (used in) provided by operating activities
$
(52,163
)
 
$
59,730

 
$
4,087

 
$
(1,860
)
 
$
9,794

Cash Flows from Investing Activities:
 
 
 
 
 
 
 
 
 
Purchases of property and equipment

 
(10,514
)
 

 

 
(10,514
)
Purchase of intangible assets

 
(5,615
)
 

 

 
(5,615
)
Investments in affiliates

 
(2,536
)
 

 

 
(2,536
)
Due from affiliates

 
(41,650
)
 

 
41,650

 

Other

 
145

 
(300
)
 

 
(155
)
   Net cash used in investing activities

 
(60,170
)
 
(300
)
 
41,650

 
(18,820
)
Cash Flows from Financing Activities:


 


 


 


 


Proceeds from revolving credit facility
95,600

 

 

 

 
95,600

Repayment to revolving credit facility
(78,600
)
 

 

 

 
(78,600
)
Senior secured notes repurchases
(2,325
)
 

 

 

 
(2,325
)
Redemption premium payment
(201
)
 

 

 

 
(201
)
Payments to noncontrolling interest holder of Olympia

 

 
(1,004
)
 

 
(1,004
)
Payments for redemption of Odyssey preferred stock
(3,961
)
 

 

 

 
(3,961
)
Due to affiliates
41,650

 

 

 
(41,650
)
 

Dividends paid to parent

 

 
(1,860
)
 
1,860

 

   Net cash provided by (used in) financing activities
52,163

 

 
(2,864
)
 
(39,790
)
 
9,509

Effect of exchange rate changes on cash

 
189

 

 

 
189

Net (decrease) increase in cash and cash equivalents

 
(251
)
 
923

 

 
672

Cash and cash equivalents, beginning of period

 
666

 
1,692

 

 
2,358

Cash and cash equivalents, end of period
$

 
$
415

 
$
2,615

 
$

 
$
3,030



94


SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED MARCH 31, 2013
(in thousands)
 
Parent
 
Guarantors
 
Non Guarantors
 
Eliminations
 
Condensed Consolidated
Cash Flows from Operating Activities:
 
 
 
 
 
 
 
 
 
   Net cash (used in) provided by operating activities
$
(50,329
)
 
$
64,779

 
$
955

 
$
(310
)
 
$
15,095

Cash Flows from Investing Activities:
 
 
 
 
 
 
 
 
 
Purchases of property and equipment

 
(9,566
)
 

 

 
(9,566
)
Purchase of intangible assets

 
(2,564
)
 

 

 
(2,564
)
Investments in affiliates

 
(350
)
 

 

 
(350
)
Due from affiliates

 
(54,651
)
 

 
54,651

 

Other

 
100

 
(300
)
 

 
(200
)
   Net cash used in investing activities

 
(67,031
)
 
(300
)
 
54,651

 
(12,680
)
Cash Flows from Financing Activities:
 
 
 
 
 
 
 
 
 
Proceeds from revolving credit facility
66,500

 

 

 

 
66,500

Repayments to revolving credit facility
(61,500
)
 

 

 

 
(61,500
)
Payments to noncontrolling interest holders of Odyssey
(6,130
)
 

 

 

 
(6,130
)
Payments to noncontrolling interest holder of Olympia

 

 
(694
)
 

 
(694
)
Payments for redemption of Odyssey preferred stock
(3,192
)
 

 

 

 
(3,192
)
Due to affiliates
54,651

 

 

 
(54,651
)
 

Dividends paid to parent

 

 
(310
)
 
310

 

   Net cash provided by (used in) financing activities
50,329

 

 
(1,004
)
 
(54,341
)
 
(5,016
)
Effect of exchange rate changes on cash

 
(267
)
 

 

 
(267
)
Net decrease in cash and cash equivalents

 
(2,519
)
 
(349
)
 

 
(2,868
)
Cash and cash equivalents, beginning of period

 
3,185

 
2,041

 

 
5,226

Cash and cash equivalents, end of period
$

 
$
666

 
$
1,692

 
$

 
$
2,358


Note 16 - Selected Quarterly Financial Data (Unaudited)

Fiscal Year Ended March 31, 2015 (in thousands)
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total
Operating revenues
$
63,337

$
61,472

$
60,145

$
60,226

$
245,180

Operating income (loss)
4,156

(20,556
)
6,426

4,193

(5,781
)
Net income (loss)
(11,915
)
(31,296
)
10,330

6,973

(25,908
)
Net income (loss) attributable to American Media, Inc. and subsidiaries
(11,845
)
(32,581
)
10,337

6,962

(27,127
)

Fiscal Year Ended March 31, 2014 (in thousands)
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total
Operating revenues
$
73,632

$
77,841

$
64,712

$
71,161

$
287,346

Operating income
13,552

10,705

1,434

8,094

33,785

Net income (loss)
1,791

(4,760
)
(54,053
)
3,751

(53,271
)
Net income (loss) attributable to American Media, Inc. and subsidiaries
1,791

(5,836
)
(54,030
)
3,756

(54,319
)


95


Fiscal 2015

First Quarter - results include AMI's share of bad debt and other expenses related to wholesaler shutdowns of approximately $3.9 million.

Second Quarter - results include a non-cash goodwill and tradename impairment charge related to certain reporting units of approximately $17.4 million, Merger and related transaction costs of approximately $3.2 million, and approximately $1.0 million for AMI's share of bad debt and other expenses related to wholesaler shutdowns.

Third Quarter - results include Merger and related transaction costs of approximately $1.6 million and the gain on sale of Country Weekly of approximately $3.4 million.

Fourth Quarter - results include reorganization costs and severance of approximately $3.3 million and approximately $2.6 million of other expenses related to wholesaler shutdowns.


Fiscal 2014

Second Quarter - results include AMI's share of bad debt related to wholesaler shutdowns of approximately $1.5 million.

Third Quarter - results include a non-cash tradename impairment charge related to certain reporting units of approximately $9.2 million.

Fourth Quarter - results include AMI's share of bad debt related to wholesaler shutdowns of approximately $3.6 million.

Schedule II - Valuation and Qualifying Accounts

All other financial statements and schedules have been omitted because the information required to be submitted has been included in the consolidated financial statements and related notes included in Item 8 of the Annual Report on Form 10-K or because they are either not applicable or not required under the rules of Regulation S-X.

The table below summarizes the activity in the valuation accounts for the periods indicated (in thousands):

Description
 
Balance, Beginning of Period
 
Additions Charged to Costs and Expenses
 
Charged to Other Accounts
 
Deductions, Write-Offs, net
 
Balance, End of Period
Allowance for doubtful accounts:
 
 
 
 
 
 
Fiscal years ended March 31,
 
 
 
 
 
 
 
 
2015
 
$
6,533

 
$
8,849

 
$
(11,182
)
 
$
(919
)
 
$
3,281

2014
 
5,473

 
5,605

 
(1,078
)
 
(3,467
)
 
6,533

2013
 
4,842

 
2,301

 
(313
)
 
(1,357
)
 
5,473

Reserve for valuation allowance on deferred tax asset:
Fiscal years ended March 31,
 
 
 
 
 
 
 
 
2015
 
$
40,261

 
$

 
$

 
$
(13,122
)
 
$
27,139

2014
 

 
40,261

 

 

 
40,261

2013
 

 

 

 

 

Allowance for excess and obsolete inventory:
Fiscal years ended March 31,
 
 
 
 
 
 
 
 
2015
 
$
561

 
$

 
$

 
$
(561
)
 
$

2014
 
445

 
4

 
112

 

 
561

2013
 
600

 

 

 
(155
)
 
445



96


Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive and principal financial officers, we evaluated the effectiveness of our disclosure controls and procedures (as defined in the Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) required by Exchange Act Rules 13a-15(b) or 15d-15(b), as of the end of the period covered by this report. Based upon that evaluation, our principal executive and principal financial officers concluded that our disclosure controls and procedures were effective as of March 31, 2015 to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Management's Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the participation of our management, including our principal executive and principal financial officers, we assessed the effectiveness of our internal control over financial reporting as of March 31, 2015 based on the framework in Internal Control—Integrated Framework (1992 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, our principal executive and principal financial officers concluded that our internal control over financial reporting was effective as of March 31, 2015 to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with United States generally accepted accounting principles.

Evaluation of Changes in Internal Control Over Financial Reporting

Under the supervision and with the participation of our management, including our principal executive and principal financial officers, we have determined that, during the fourth quarter of fiscal 2015, there were no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Item 9B. Other Information.

None.



97


PART III

Item 10.     Directors, Executive Officers and Corporate Governance.

This information will be provided in our definitive Proxy Statement for our 2015 Annual Meeting of Stockholders if filed with the SEC no later than 120 after the end of our fiscal year covered by this Annual Report, and incorporated herein by reference or, alternatively, by amendment to this Form 10-K under cover of Form 10-K/A no later than the end of such 120 day period.

Item 11. Executive Compensation.

This information will be provided in our definitive Proxy Statement for our 2015 Annual Meeting of Stockholders if filed with the SEC no later than 120 after the end of our fiscal year covered by this Annual Report, and incorporated herein by reference or, alternatively, by amendment to this Form 10-K under cover of Form 10-K/A no later than the end of such 120 day period.

Item 12.     Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

This information will be provided in our definitive Proxy Statement for our 2015 Annual Meeting of Stockholders if filed with the SEC no later than 120 after the end of our fiscal year covered by this Annual Report, and incorporated herein by reference or, alternatively, by amendment to this Form 10-K under cover of Form 10-K/A no later than the end of such 120 day period.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

This information will be provided in our definitive Proxy Statement for our 2015 Annual Meeting of Stockholders if filed with the SEC no later than 120 after the end of our fiscal year covered by this Annual Report, and incorporated herein by reference or, alternatively, by amendment to this Form 10-K under cover of Form 10-K/A no later than the end of such 120 day period.

Item 14.     Principal Accounting Fees and Services.

This information will be provided in our definitive Proxy Statement for our 2015 Annual Meeting of Stockholders if filed with the SEC no later than 120 after the end of our fiscal year covered by this Annual Report, and incorporated herein by reference or, alternatively, by amendment to this Form 10-K under cover of Form 10-K/A no later than the end of such 120 day period.


98


PART IV

Item 15. Exhibits and Financial Statement Schedules.

(a) The following Consolidated Financial Statements filed as part of this report can be found in Item 8 “Financial Statements and Supplementary Data” of this Annual Report:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of March 31, 2015 and 2014
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the fiscal years ended March 31, 2015, 2014 and 2013
Consolidated Statements of Stockholders' Deficit for the fiscal years ended March 31, 2015, 2014 and 2013
Consolidated Statements of Cash Flows for the fiscal years ended March 31, 2015, 2014 and 2013
Notes to Consolidated Financial Statements
Schedule II - Valuation and Qualifying Accounts for the fiscal years ended March 31, 2015, 2014 and 2013

(b) Exhibits

Exhibit Number
 
Description
2.1
 
Debtors' Amended Joint Prepackaged Plan of Reorganization under Chapter 11 of the Bankruptcy Code, filed December 15, 2010 (incorporated herein by reference to Exhibit 2.1 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012).
2.2
 
Agreement and Plan of Merger, dated as of August 15, 2014, among AMI Parent Holdings LLC, AMI Merger Corporation and American Media, Inc. (incorporated herein by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed with the SEC on August 15, 2014).
2.3
 
Asset Purchase Agreement, dated as of January 26, 2015, among American Media, Inc. and its wholly-owned subsidiary Weider Publications, LLC and Meredith Corporation (incorporated herein by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed with the SEC on January 30, 2015).
3.1
 
Amended and Restated Certificate of Incorporation of American Media, Inc. (incorporated herein by reference to Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on February 23, 2015).
3.2
 
Second Amended and Restated By-Laws of American Media, Inc. (incorporated herein by reference to Exhibit 3.2 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012).
4.1
 
Stockholders Agreement, dated as of December 22, 2010, among American Media, Inc. and its stockholders signatory thereto (incorporated herein by reference to Exhibit 4.1 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012).
4.2
 
Amendment to Stockholders' Agreement, dated October 2, 2013, among the Company and the stockholders party thereto (incorporated herein by reference to Exhibit 4.3 to the Registrant's Current Report on Form 8-K filed with the SEC on October 2, 2013).
4.3
 
Indenture, dated as of December 1, 2010, between AMO Escrow Corporation (predecessor-in-interest to American Media, Inc.) and Wilmington Trust FSB, as trustee and collateral agent, related to AMO Escrow Corporation's 11.5% First Lien Senior Secured Notes due 2017 (incorporated herein by reference to Exhibit 4.2 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012).
4.4
 
Form of 11.5% First Lien Senior Secured Notes due 2017 (incorporated herein by reference to Exhibit 4.3 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012).
4.5
 
First Supplemental Indenture, dated December 22, 2010, among American Media, Inc., the guarantors listed on the signature pages thereto and Wilmington Trust FSB, as trustee and collateral agent, related to American Media, Inc.'s 11.5% First Lien Senior Secured Notes due 2017 (incorporated herein by reference to Exhibit 4.4 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012).
4.6
 
Second Supplemental Indenture, dated May 13, 2011, among American Media, Inc., AMI Digital, Inc. and Wilmington Trust FSB, as trustee and collateral agent, related to American Media, Inc.'s 11.5% First Lien Senior Secured Notes due 2017 (incorporated herein by reference to Exhibit 4.5 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012).

99


4.7
 
Third Supplemental Indenture, dated April 25, 2012, among American Media, Inc., Odyssey Magazine Publishing Group LLC (predecessor-in-interest to Odyssey Magazine Publishing Group, Inc.) and Wilmington Trust, National Association (as successor by merger to Wilmington Trust FSB), as trustee and collateral agent, related to American Media, Inc.'s 11.5% First Lien Senior Secured Notes due 2017 (incorporated herein by reference to Exhibit 4.6 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012).
4.8
 
Fourth Supplemental Indenture, dated as of August 15, 2014, between American Media, Inc. and Wilmington Trust, National Association, as Trustee and Collateral Agent, to the Indenture, dated as of December 1, 2010, among American Media, Inc. (as successor by merger to AMO Escrow Corporation), the guarantors party thereto and Wilmington Trust, National Association (as successor by merger to Wilmington Trust FSB), as Trustee and Collateral Agent, relating to the 11½% First Lien Senior Secured Notes due 2017 (incorporated herein by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed with the SEC on August 15, 2014).
4.9
 
Indenture dated as of December 22, 2010, among American Media, Inc., the guarantors listed on the signature pages thereto and Wilmington Trust FSB, as trustee and collateral agent, relating to American Media, Inc.'s 13.5% Second Lien Senior Secured Notes due 2018 (incorporated herein by reference to Exhibit 4.7 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012).
4.10
 
Form of 13.5% Second Lien Senior Secured Notes due 2018 (incorporated herein by reference to Exhibit 4.8 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012).
4.11
 
First Supplemental Indenture, dated as of May 13, 2011, among American Media, Inc., AMI Digital, Inc. and Wilmington Trust FSB, as trustee and collateral agent, related to American Media, Inc.'s 13.5% Second Lien Senior Secured Notes due 2018 (incorporated herein by reference to Exhibit 4.9 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012).
4.12
 
Second Supplemental Indenture, dated as of April 25, 2012, among American Media, Inc., Odyssey Magazine Publishing Group LLC (predecessor-in-interest to Odyssey Magazine Publishing Group, Inc.) and Wilmington Trust, National Association (as successor by merger to Wilmington Trust FSB), as trustee and collateral agent, related to American Media Inc.'s 13.5% Second Lien Senior Secured Notes due 2018 (incorporated herein by reference to Exhibit 4.10 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012).
4.13
 
Third Supplemental Indenture, dated as of August 15, 2014, between American Media, Inc. and Wilmington Trust, National Association, as Trustee and Collateral Agent, to the Indenture, dated as of December 22, 2010, among American Media, Inc., the guarantors party thereto and Wilmington Trust, National Association (as successor by merger to Wilmington Trust FSB), as Trustee and Collateral Agent, relating to the 13½% Second Lien Senior Secured Notes due 2018 (incorporated herein by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K filed with the SEC on August 15, 2014).
4.14
 
Fourth Supplemental Indenture, dated as of January 20, 2015, by and between American Media, Inc. and Wilmington Trust, National Association (as successor by merger to Wilmington Trust, FSB), as trustee and collateral agent, related to American Media, Inc.'s 13½% Second Lien Senior Secured Notes due 2018 (incorporated herein by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K filed with the SEC on January 26, 2015).
4.15
 
Indenture, dated as of October 2, 2013, by and among American Media, Inc., the Guarantors named therein, and Wilmington Trust, National Association, as Trustee, relating to American Media Inc's 10% Second Lien Senior Secured PIK Notes due 2018 (incorporated herein by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed with the SEC on October 2, 2013).
4.16
 
Form of 10% Second Lien Senior Secured PIK Notes due 2018 (incorporated herein by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K filed with the SEC on October 2, 2013).
4.17
 
First Supplemental Indenture, dated as of August 15, 2014, between American Media, Inc. and Wilmington Trust, National Association, as Trustee and Collateral Agent, to the Indenture, dated as of October 2, 2013, among American Media, Inc., the guarantors party thereto and Wilmington Trust, National Association, as Trustee and Collateral Agent, relating to the 10% Second Lien Senior Secured PIK Notes due 2018 (incorporated herein by reference to Exhibit 4.3 to the Registrant's Current Report on Form 8-K filed with the SEC on August 15, 2014).
4.18
 
Indenture, dated as of January 20, 2015, by and among American Media, Inc., the guarantors listed on the signatory pages thereto and Wilmington Trust, National Association, as trustee and collateral agent, related to American Media, Inc.'s 7.000% Second Lien Senior Secured Notes due 2020 (incorporated herein by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed with the SEC on January 26, 2015).
4.19
 
Registration Rights Agreement, dated as of December 1, 2010, by and between AMO Escrow Corporation (predecessor-in-interest to American Media, Inc.) and J.P. Morgan Securities LLC, as representative for the several initial purchasers listed on Schedule 1 thereto (incorporated herein by reference to Exhibit 4.11 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012).
4.20
 
Registration Rights Agreement Joinder, dated as of December 22, 2010, by American Media, Inc. and the subsidiaries of American Media, Inc. listed on the signature pages thereto (incorporated herein by reference to Exhibit 4.12 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012).

100


4.21
 
Waiver and Amendment to Registration Rights Agreement, dated as of October 2, 2013, among the Company, the guarantors named therein, and the majority holders named therein relating to the 13½% Second Lien Senior Secured Notes due 2018 (incorporated herein by reference to Exhibit 4.4 to the Registrant's Current Report on Form 8-K filed with the SEC on October 2, 2013).
4.22
 
American Media, Inc. Equity Incentive Plan (incorporated herein by reference to Exhibit 4.14 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012).
4.23
 
Form of Restricted Stock Agreement for American Media, Inc. Equity Incentive Plan (incorporated herein by reference to Exhibit 4.15 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012).
10.1
 
Revolving Credit Agreement, dated as of December 22, 2010, among American Media, Inc., as borrower, the lenders party thereto, JP Morgan Chase Bank, N.A., as administrative agent, Deutsche Bank Securities, Inc., as syndication agent, J.P. Morgan Securities, LLC, as co-lead arranger and sole bookrunner, Deutsche Bank Securities, Inc. and Credit Suisse Securities (USA) LLC, as co-lead arrangers, and Credit Suisse Securities (USA) LLC, as documentation agent (incorporated herein by reference to Exhibit 10.1 to the Registration Statement on Form S-4/A filed with the SEC on September 28, 2012).
10.2
 
Waiver, dated July 3, 2014, to the Revolving Credit Agreement, dated December 22, 2010 (as amended, restated, modified or supplemented from time to time), among American Media, Inc., JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto (incorporated herein by reference to Exhibit 10.45 to the Registrants Annual Report on Form 10-K filed with the SEC on August 15, 2014).
10.3
 
Amendment No. 2, dated July 15, 2014, to the Revolving Credit Agreement, dated December 22, 2010 (as amended, restated, modified or supplemented from time to time), among American Media, Inc., JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto (incorporated herein by reference to Exhibit 10.46 to the Registrant's Annual Report on Form 10-K filed with the SEC on August 15, 2014).
10.4
 
Amendment No. 3, dated August 8, 2014, to the Revolving Credit Agreement, dated December 22, 2010 (as amended, restated, modified or supplemented from time to time), among American Media, Inc., JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto (incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the SEC on August 14, 2014).
10.5
 
Waiver to Revolving Credit Agreement, dated August 15, 2014, among American Media, Inc., as borrower, JPMorgan Chase Bank, N.A., as Administrative Agent, and the lenders from time to time party thereto (incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the SEC on August 20, 2014).
10.6
 
Amendment No. 4, dated as of January 20, 2015, to the Revolving Credit Agreement, dated December 22, 2010 (as amended, restated, modified or supplemented from time to time), by and among American Media, Inc., JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto (incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the SEC on January 26, 2015).
10.7
 
Amendment No. 5, dated as of January 27, 2015, to the Revolving Credit Agreement, dated December 22, 2010 (as amended, restated, modified or supplemented from time to time), by and among American Media, Inc., JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto (incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the SEC on January 30, 2015).
10.8
*
Waiver to Revolving Credit Agreement, dated February 17, 2015, among American Media, Inc., as borrower, JPMorgan Chase Bank, N.A., as Administrative Agent, and the lenders from time to time party thereto.
10.9
*
Amendment and Restatement Agreement, dated as of February 20, 2015, to the Revolving Credit Agreement, dated December 22, 2010 (as amended, restated, modified or supplemented from time to time), among American Media, Inc., as borrower, JPMorgan Chase Bank, N.A., as Administrative Agent, and the lenders from time to time party thereto.
10.10
 
Guarantee and Collateral Agreement, dated as of December 22, 2010, among American Media, Inc., the subsidiaries of American Media, Inc. identified therein, and JP Morgan Chase Bank, N.A., as administrative agent (incorporated herein by reference to Exhibit 10.2 to the Registration Statement on Form S-4/A filed with the SEC on September 28, 2012).
10.11
 
Collateral Agreement, dated as of December 22, 2010, among American Media, Inc., the subsidiaries of American Media, Inc. identified therein, and Wilmington Trust FSB, as collateral agent, relating to American Media, Inc.'s 11.5% First Lien Senior Secured Notes due 2017 (incorporated herein by reference to Exhibit 10.3 to the Registration Statement on Form S-4/A filed with the SEC on September 28, 2012).
10.12
 
Collateral Agreement, dated as of December 22, 2010, among American Media, Inc., the subsidiaries of American Media, Inc. identified therein, and Wilmington Trust FSB, as collateral agent, relating to American Media, Inc.'s 13.5% Second Lien Senior Secured Notes due 2018 (incorporated herein by reference to Exhibit 10.4 to the Registration Statement on Form S-4/A filed with the SEC on September 28, 2012).

101


10.13
 
Second Lien PIK Collateral Agreement, dated as of October 2, 2013, by and among American Media, Inc., the guarantors named therein and Wilmington Trust, National Association, as collateral agent (incorporated herein by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed with the SEC on October 2, 2013).
10.14
 
Collateral Agreement, dated as of January 20, 2015, by and among American Media, Inc., the subsidiaries of American Media, Inc. listed on the signature pages thereto, and Wilmington Trust, National Association, as collateral agent (incorporated herein by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed with the SEC on January 26, 2015).
10.15
 
First Lien Intercreditor Agreement, dated as of December 22, 2010, among American Media, Inc., the subsidiaries of American Media, Inc. listed on the signature pages thereto, JPMorgan Chase Bank, N.A., as Agent and Credit Agreement Collateral Agent, and Wilmington Trust FSB, as Senior Secured Notes Trustee and Senior Secured Notes Collateral Agent (incorporated herein by reference to Exhibit 10.5 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012).
10.16
 
Junior Lien Intercreditor Agreement, dated as of December 22, 2010, among American Media, Inc., the subsidiaries of American Media, Inc. listed on the signature pages thereto, JPMorgan Chase Bank, N.A., as Agent and Revolving Credit Collateral Agent, and Wilmington Trust FSB, as First Lien Trustee, First Lien Collateral Agent, Second Lien Trustee and Second Lien Collateral Agent (incorporated herein by reference to Exhibit 10.6 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012).
10.17
 
Joinder, dated October 2, 2013, to the existing Junior Lien Intercreditor Agreement, dated December 22, 2010, by and among American Media, Inc., the guarantors named therein, the Credit Agreement Agent (as defined therein), Wilmington Trust, National Association (as successor by merger to Wilmington Trust FSB), in its capacity as First Lien Trustee (as defined therein) and Wilmington Trust, National Association (as successor by merger to Wilmington Trust FSB), in its capacity as Second Lien Trustee (incorporated herein by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed with the SEC on October 2, 2013).
10.18
 
Collateral Agent Joinder Agreement No. 2, dated as of January 20, 2015, to the Junior Lien Intercreditor Agreement dated December 22, 2010, by and among American Media, Inc., the subsidiaries of American Media, Inc. listed on the signature pages thereto, JPMorgan Chase Bank, N.A., as agent and revolving credit collateral agent, Wilmington Trust, National Association (as successor by merger to Wilmington Trust, FSB), as first lien trustee, first lien collateral agent, second lien trustee and second lien collateral agent, and Wilmington Trust, National Association, as additional collateral agent for the additional second priority secured parties (incorporated herein by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed with the SEC on January 26, 2015).
10.19
 
Pari Second Lien Intercreditor Agreement, dated January 20, 2015, by and between Wilmington Trust, National Association (as successor by merger to Wilmington Trust, FSB), as second lien trustee and second lien collateral agent, and Wilmington Trust, National Association, as the trustee and collateral agent for the 7% Second Lien Senior Secured Notes due 2020 (incorporated herein by reference to Exhibit 10.4 to the Registrant's Current Report on Form 8-K filed with the SEC on January 26, 2015).
10.20
 
Exchange Agreement, dated September 27, 2013, among American Media, Inc. and the parties thereto (incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the SEC on October 2, 2013).
10.21
 
Note Purchase Agreement, dated as of August 15, 2014, among American Media, Inc., the subsidiary guarantors party thereto, certain funds and accounts managed by Chatham Asset Management, LLC and Omega Charitable Partnership, L.P. (incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the SEC on August 15, 2014).
10.22
 
Amendment, dated as of August 15, 2014, among American Media, Inc., certain subsidiaries party thereto, Chatham Asset Management, LLC and Omega Charitable Partnership, L.P., to the Exchange Agreement, dated as of September 27, 2013, among American Media, Inc., certain subsidiaries party thereto, Chatham Asset Management, LLC and Omega Charitable Partnership, L.P. (incorporated herein by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed with the SEC on August 15, 2014).
10.23
 
Exchange Agreement, dated as of September 8, 2014, among American Media, Inc., AMI Parent Holdings LLC, Chatham Asset Management, LLC and Omega Charitable Partnership, L.P. (incorporated herein by reference to Exhibit 10.5 to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on November 14, 2014).
10.24
 
Exchange Agreement, dated as of January 5, 2015, among American Media, Inc., Chatham Asset Management, LLC, Chatham Asset High Yield Master Fund, Ltd., Chatham Eureka Fund, L.P, and Chatham Fund, LP (incorporated herein by reference to Exhibit 10.6 to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on February 23, 2015).
10.25
 
American Media, Inc. Non-Employee Director Separation Pay Plan (incorporated herein by reference to Exhibit 10.7 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012).
10.26
 
Preferred Stock Purchase Agreement, dated as of August 10, 2012, by and between American Media, Inc. and Hudson Publications, LLC (incorporated herein by reference to Exhibit 10.38 to the Registration Statement on Form S-4 filed with the SEC on August 22, 2012).

102


10.27
 
Form of Indemnification Agreement by and among American Media, Inc. and the Indemnitee (incorporated herein by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on February 14, 2014).
12.1
*
Computation of Ratio of Earnings to Fixed Charges.
21.1
*
Subsidiaries of American Media, Inc.
31.1
*
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Executive Officer.
31.2
*
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Financial Officer.
32
**
Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
101
*
The following materials from American Media Inc.'s Annual Report on Form 10-K for the fiscal year ended March 31, 2015, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss), (iii) the Consolidated Statements of Stockholders' Deficit, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements.
*
 
Filed herewith.
**
 
Furnished herewith.


103


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
 
 
AMERICAN MEDIA, INC.
 
 
 
 
Dated:
June 30, 2015
by:
/s/ David J. Pecker
 
 
 
David J. Pecker
 
 
 
Chairman, President and Chief Executive Officer
 
 
 
(Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

Signature
 
Title
 
Date
 
 
 
 
 
/s/ David J. Pecker
 
Chairman, Director, President and Chief Executive Officer
 
June 30, 2015
David J. Pecker
 
(Principal Executive Officer)
 
 
 
 
 
 
 
/s/ Christopher V. Polimeni
 
Executive Vice President, Chief Financial Officer and Treasurer
 
June 30, 2015
Christopher V. Polimeni
 
(Principal Financial and Accounting Officer)
 
 
 
 
 
 
 
/s/ Evan Ratner
 
Director
 
June 30, 2015
Evan Ratner
 
 
 
 
 
 
 
 
 
/s/ Barry Schwartz
 
Director
 
June 30, 2015
Barry Schwartz
 
 
 
 
 
 
 
 
 
/s/ David R. Hughes
 
Director
 
June 30, 2015
David R. Hughes
 
 
 
 

104